LUKE BAKER, Pretoria | Tuesday 2.15pm
FINANCIAL markets got a boost on Tuesday after the release of encouraging central bank reserves and money supply figures which pointed to further interest rate cuts.
Gold and foreign exchange reserves grew by R800-million in April to R33,7-billion and the central bank’s outstanding forward book — the amount of forward dollar exposure — was cut by a larger-than-expected $900-million to $23,30-billion.
A Reuters poll of economists forecast reserves to come in at R33,68-billion and the forward book to dip to $23,9-billion.
”The reserve and forex figures are good and the money supply numbers do not change our expectation of an imminent cut in interest rates,” said Tertia Jacobs, an economist at Real-Africa Durolink.
The rand held firm at R6,06 to the dollar, from R6,08 during Monday trade, after the releases. Yields on the benchmark R150 government bond slipped a touch to 14,18%. Stocks were seen opening firmly, particularly given the Dow’s breach of 11000 overnight.
Broad M3 money supply grew 10,1% in March, from a revised 7,0% in February, and private sector credit expanded 14,5% — slightly more than expected. Despite exceeding the central bank’s 6% to 10% annual growth guideline, analysts do not believe the money supply figures — a key indicator of inflation — will interfere with long-forecast rate cuts.
”It’s a little disappointing that the credit was basically unchanged, but I don’t think it alters the downtrend in interest rates,” said Societe Generale economist Noelani King.
South African interest rates have dropped quickly this year — from 23% in January to 19% now — as the country steadily recovers from a currency crisis, and are seen possibly falling to 16% by the end of this year.
The improving reserves situation is likely to back up further rate cuts. While gross reserves still only cover about 10 weeks of imports, the central bank’s work in unwinding its forward book commitment is encouraging, economists said.
”It’s very positive that the forward book has declined more than in previous months — it’s down by $900-million whereas in other months it’s gone down by around $200-million,” said King.
Even more positive, say economists, is the reduction in the net open foreign exchange position — the amount by which the forward book exceeds the dollar value of net reserves.
The number is the best measure of how good a job the central bank is doing at reducing the forward book while boosting reserves. It declined to $20,6-billion from $21,7-billion.
”The Reserve Bank has bought in $1,1-billion somewhere last month and there is talk that they were buying heavily in the last couple of days,” said JP Morgan’s Peter Worthington. ”So the reserves are a lot better than expected.” — Reuters