The likelihood of a 50 basis-point cut in interest rates by the South African Reserve Bank (SARB) stands at about 60%, according to Lehman Brothers economist Tolga Ediz.
Commenting in a recent research note, the London-based Ediz said that the choice facing the SARB’s monetary policy committee (MPC) at its February 9 to 10 meeting will not be an easy one.
“The MPC’s choice has not been made any easier by the latest data flow,” he writes. “Credit growth remained robust in January, suggesting that there is still plenty of ammunition available to the consumer.
“Wage settlements in the textile industry, at 8,5%, were much bigger than would be consistent with the inflation target and signalled that a rise in unit labour costs is likely in one of the key export industries.
“But December also saw a bigger-than-expected trade surplus, and the manufacturing PMI fell below 50 in January, suggesting that manufacturing output was slowing appreciably. With the manufacturing slowdown, GDP [gross domestic product] growth could well revert to trend in the first quarter of 2005.
“In sum, we judge that the figures are probably mildly supportive of the case for cutting rates now rather than later. But we found little reason in the data to change our call — we think there is a 60% probability of a 50 basis-point cut in rates next week.
“As the probability indicates, that is a very close call, but we still believe that rate cuts are on the way. Provided the rand remains stable, even if the MPC keeps rates on hold next week, we think it will follow up with a rate cut in April.” — I-Net Bridge