Share

SARB should guide markets rather than surprise them - economist

Johannesburg – The Reserve Bank should guide markets with its rate decisions, rather than surprise them as it has historically done, according to an economist.

At the Old Mutual Investment Group’s (OMIG) quarterly investment briefing on Wednesday, head of economic research Johann Els shared expectations for future rate decisions.

The South African Reserve Bank's (SARB's) recently-released monetary policy review showed the bank is taking a more hawkish stance as it wants the real repo rate to be at 1.5%, said Els. The bank forecasts inflation at 3.5% with no more room for rate cuts.

But OMIG expects two or three further rate cuts in 2018, if the rand remains stable and if inflation remains within the 3% to 6% target range.

“We are disappointed by the Reserve Bank’s recent lack of clear communication with markets, having chosen to surprise the markets both in July and September.” This approach is different to global central banks, which have tried to guide markets instead of surprise them.

Inflation expectations

OMIG expects inflation to continue to fall, reaching close to 4% early in 2018. This is below the 4.5% midpoint of the SARB’s target range.

Food inflation is expected to be lower, as meat inflation appears to have reached the peak of its inflation.

Mini budget expectations

Els also shared expectations of the medium-term budget policy statement (mini budget) on October 25.

So far, revenue collection for the first two months of the fiscal year has been below the budget line. Both individual income tax and VAT have been below target. But history shows in the last six months of the fiscal year, revenue tends to pick up, Els explained.

In terms of the mini budget outlook, OMIG expects the current account deficit to be 4% of GDP and possibly a revenue shortfall of R50bn.

“The reason why tax revenue is below target is because the economy is weaker.” This means the deficit will overrun because of a shortfall in terms of tax revenue, he explained.

This will add “huge pressure” on ratings agency decisions and the February budget for additional revenue measures, he said.

Els warned that South Africa could fall into a debt trap if growth does not improve by at least 2%. “The debt-to-GDP ratio will improve if we continue to grow.”

“We need to sort out economic policy to get GDP growth back on track to 2%,” said Els. He also commented that this is below the 5% target of the National Development Plan, but efforts must be made to get away from 0% growth. 


SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.

Read Fin24's top stories trending on Twitter:

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.90
+0.2%
Rand - Pound
23.85
+0.2%
Rand - Euro
20.39
+0.2%
Rand - Aus dollar
12.32
+0.2%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders