Sarb suggests rate cut not ruled out

Sarb suggests rate cut not ruled out

2011-10-12 16:12

Johannesburg - The Reserve Bank struck a dovish note about the economy on Wednesday due to global weakness, suggesting there is still a chance of a rate cut despite a stronger-than-expected performance by the manufacturing sector in August.

Analysts dismissed as a blip an unexpected rise in factory output to 5.6% year-on-year (y/y) from a 6.2% fall in July, and said the sector was still in trouble.

South African Reserve Bank (Sarb) governor Gill Marcus told parliament the bank was concerned about local demand and said prevailing global conditions were severe.

Government bonds extended gains after the comments, with yields on the benchmark 2015 and 2026 bonds hitting session lows at 6.625% and 8.325% respectively.

Razia Khan, head of Africa Research at Standard Chartered, said the manufacturing data could be largely ignored because forward-looking indicators such as the purchasing managers' index were weak.

"What is important right now are Gill Marcus' very dovish comments - demonstrating the seriousness with which the Sarb are treating external risks, as well as the emphasis on household consumption in South Africa slowing and the acknowledgement that inflation pressures are exogenous," she said.

"All of these comments point to the very real risks of rate easing in line with what other markets have done."

Rate cut?

However, a majority of analysts in the Reuters Econometer poll said another rate cut is unlikely, especially as the rand is recovering from sharp 20%-plus losses it suffered in September - its worst month since the start of the financial crisis late in 2008.

The rand has recovered from 28-month lows of 8.4950 to the dollar seen in September.

It was a top performer on Wednesday, gaining nearly 2% partly as Finance Minister Pravin Gordhan, in comments made in early September but only just released, said government would use foreign exchange reserves to ease market stress.

Nedbank said the Reserve Bank was most likely to keep interest rates on hold at their current three-decade lows, but might be forced to act in the next three months if the global and local economy showed more signs of deceleration.

"The MPC (monetary policy committee) is likely to leave interest rates flat well into 2012. However, if local and global economic conditions were to weaken further, an interest rate cut may be on the cards before the end of the year," said Nedbank in a note.

  • Serame - 2011-10-25 12:07

    we could do with a little bit of a rate-cut..Cut us some slack Mrs Marcus

  • Neil - 2012-05-04 09:06

    Well Gill, Why don't you guys focus on supporting the Manufacturer and getting your buddies in labour and Government to stop Punishing the producers of this country, Like we r the Baddies...! Here we go nice and slow, specially for you Gill! More producers, More Jobs, More people to spend there money, More tax in your fat cat pockets! leave the Rand as is, Government have screwed this up so badly that producers have no choice but to seek out markets in other Countries.

  • Michael - 2012-05-05 06:28

    A sure sign that the rest of 2012 is going to be tough. With the Rand strengthening against the USD it's unlikely that Gill will cut rates, that would slow capital inflows. Watch out Gilly my girl, as the Rand strengthens, imports increase putting pressure on local manufacturing. If our national prodcutivity rate was better, or at least close to those of our trading partners, we would be less effected, but they're not.

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