The South African Chamber of Business’s (Sacob) Business Confidence Index (BCI) rebounded by 3,4 index points in June to 105,8 from 102,4 in May, Sacob said on Thursday.
This turnaround in June came about as easier financial conditions set in and real activity in some sectors of the economy remained resilient, Sacob said.
The average weaker rand and the easing of the monetary policy stance during June assisted in preventing a gloomy picture developing further, Sacob added.
Sacob welcomed the monetary authorities’ lowering of the repo rate by 1,5 percentage points in June.
“The further decline in inflation and the prospects of a meaningful but responsible easing of monetary policy might contribute to a more generous business mood and an improvement in business confidence levels,” it added.
In view of slower economic growth by an annualised 1,5% in the first quarter of 2003, Sacob concurs with general sentiment that further interest rate cuts will be necessary in the months to come in order to ease the tight financial conditions for business and consumers alike, it added.
The continued strengthening of the rand, even after the cut in interest rates, confirms that local interest rates are still relatively high. This must be addressed by further rate cuts in the months to come as inflation recedes, it said.
However, Sacob expressed concern about the volatility, and not necessarily the level of the rand over the past one and three-quarter years. The impact it could have on the profitability of exports and the “unfair imported competition” that local business has to deal with can have important consequences, it said.
“Sacob therefore trusts that the present strength of the rand is fundamentally based and that the volatility of the last one and three-quarter years will not be repeated. However, if the rand remained at current levels as contemplated by the Reserve Bank, the prices of imported goods could decline by as much as 18% in rand terms in 2003,” it said. – I-Net Bridge