SA economic confidence up on rate-cut hopes
South African economic confidence jumped to its highest level in a year in October, suggesting better conditions in 2009 when expected lower inflation opens the way for rate cuts.
Economic growth prospects have dimmed, though, while the potential advantage to exporters from a sharply weaker currency will likely be offset by softer commodity prices.
A survey of 18 economists, released on Thursday, showed the Reuters Econometer, a confidence measure of six weighted indicators, leapt to 243,62 last month—its highest level since October 2007—from 227,74.
The econometer, which points to conditions a year ahead, has been rising since hitting a five-and-a-half year low in May.
Inflation forecasts fell after data last week showed a bigger-than-expected deceleration in both consumer and producer indices for September.
CPIX consumer inflation slowed to 13% year-on-year from a record high of 13,6% in August, thanks to easing food and fuel costs, two of the main drivers of faster inflation.
Producer inflation braked to 16% in September from 19,1%.
“We expect [inflation] it to be within the (3% to 6%) target range by mid-2009 [but] this is dependent on the rand not blowing up ... and oil prices in rand terms continuing to tick down,” Macquarie First South economist Gina Schoeman said.
“So given that, we are looking at a 50 basis point cut in June 2009.
The inflation data, together with a surprisingly big slowdown in credit growth, raised hopes interest rates will fall sooner, and by more, than previously thought.
The poll showed no economist anticipates an adjustment to the 12% repo rate this year, but forecasts were lower for the next two years compared with the September survey.
The central bank’s lending rate was seen at a mean 10,19% and 9,25% at the end of 2009 and 2010 respectively, from 10,43% and 9,49% previously.
Predictions were for rate cuts of between 150 and 250 basis points by the end of next year.
The central bank lifted the repo by five percentage points to 12% between June 2006 and June 2008 to try to tame inflation.
Rand a worry
Economists saw CPIX inflation slowing to an average 7,33% in 2009 from 11,44% this year.
The all-items consumer inflation rate was seen at an average 11,76% this year, falling to 7,09% next year and 5,45% in 2010.
A revamped CPI will replace CPIX from January as the measure targeted by the central bank for monetary policy.
The Reserve Bank has identified a weaker currency as the biggest threat to the inflation outlook, and in turn, the chance of early rates relief.
The rand plunged to a near seven-year low of 11,88 against the dollar last month, knocked by global risk aversion, a large current account deficit and falling metals prices, before rebounding.
But, at about 9,70 it is still 30% weaker this year.
Economists put the currency at 9,54 at the end of 2008.
“The rand will probably be choppy and weak as we go to [general] elections next year,” Nedbank senior economist Nicky Weimar said.
“We think even though it will be weakish and volatile it won’t fall through the floor and won’t add to inflation.”
Sharply lower oil prices, compared with a few months ago, have so far helped to offset the impact from the softer currency.
Slower global growth, however, would continue to weigh on the local economy, dragging expansion down to 2,63% next year from 2008’s forecast 3,46%. - Reuters