Another 100 basis point slash on cards
Economists expect repo to be cut to 8.5%
April 26, 2009
By Wiseman Khuzwayo
Economists expect a cut of 100 basis points in the repo rate to 8.5 percent by the monetary policy committee (MPC) of the Reserve Bank when it meets this week.
Johan Rossouw, chief economist and strategist at Vunani Securities, said on Friday that in the light of the weak economic data received recently - particularly in retail trade sales, manufacturing output and motor vehicle sales - and taking cognisance of the broad macro economic picture and prospects for inflation, he was of the opinion that further interest rate alleviation was justified and probable. (See story on manufacturing).
"We expect 100 basis points and at least another further 100 basis points at ensuing meetings," he said.
In a presentation at the Wits Business School on Thursday, Monde Mnyande, chief economist and executive general manager at the Reserve Bank, said the interest rate cycle had reversed in December with a reduction of 50 basis points in the repo rate on the basis of the expected return of inflation to within the target range of between 3 percent and 6 percent.
Meanwhile, he said, the domestic and global economic outlook had weakened significantly.
Against the backdrop of a slowing global and domestic economy and an improved medium-term outlook for inflation, the MPC decided to reduce the repo rate by a further 100 basis points at each of its subsequent meetings in February and last month.
The most recent central forecast of the bank shows consumer price inflation averaging 8.1 percent in the first quarter of this year and then declining to below 6 percent - the top of the Reserve Bank's target range for inflation - in the third quarter of the year.
Rossouw agreed with the bank's forecast on inflation.
He forecast that this month the M3 money supply would decline to 11.67 percent year on year, the credit extension to the domestic private sector to 8.58 percent, and total loans and advances to 7.64 percent. The producer price index headline would be 5.7 percent, while inflation on imported goods would decline to -10.7 percent.
Dawie Roodt, the chief economist at Efficient Group, said he was pretty sure that the MPC would cut the repo rate by 100 basis points. "Nearly everybody says so. The market is expecting that the bank will cut the rate and it has every reason to do so to massage these expectations.
"I do not necessarily agree with the 100 basis points. If I were the bank I would go for 50 basis points," said Roodt.
He was against a dramatic rate cut in order to encourage the country's manufacturing output because, he argued, if that happened people would spend more and there would be more imports and less exports because of the low international demand.
Roodt said: "You would then be helping other economies."
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