The sluggish first quarter tempo of economic growth reported on Tuesday is likely to spur an interest rate cut next month, say economists.
The sluggish first quarter tempo of economic growth reported on Tuesday is likely to spur an interest rate cut next month, economists said.
They predicted this would be the first of three single percentage cuts in the prime interest rate before the end of the year.
Earlier in the day, Statistics South Africa (Stats SA) reported an increase of only 1,5% in the real annual gross domestic product (GDP) in the first three months of this year. This compared to a corresponding figure of 2,4% in the fourth quarter of last year.
Transnet economist Ulrich Joubert said the latest GDP was likely –depending on the consumer inflation data to be released on Friday — to encourage an interest rate cut.
”One could expect the monetary policy committee of the SA Reserve Bank to opt for a reduction of a full percentage point when it meets in June.”
Absa economist John Loos agreed, saying a fall in interest rates had undoubtedly become a stronger likelihood.
”I think this will be the first of three one percent cuts this year,” he said.
Old Mutual economist Johann Els said a rate cut next month was probably a given if this week’s consumer inflation figures reflected a slowdown in price rises.
”Even if inflation is not revised lower, slower economic growth, improved inflation prospects down the line, the strong rand and consumer credit, which is under control, will underpin the argument for lower interest rates.”
Els said lower rates would be a considerable boost for consumers, with a decline in the cost of home loans and vehicle finance.
Stats SA said increases in the seasonally adjusted real gross domestic product (GDP) in the four quarters of last year were 3%, 3,8%, 2,9% and 2,4%.
This yielded an annual growth rate last year of 3% in real GDP at market prices.
The main contributors to growth in the first quarter were the communication and transport industry, and finance, real estate, and business services.
There was also increased activity in the wholesale and retail trade, hotels and restaurants industry.
The seasonally adjusted real annualised value added by non-agricultural industries for the first three months of the year increased by 1,6%.
None of the three economists expected the SA Reserve Bank to drop interest rates by more than one percent. This would send the wrong message to the markets and might raise inflationary expectations.
The central bank was more likely to opt for a gradual reduction in interest rates with further falls in September and December, the economists said. – Sapa