Real interest rates continue to be punitively high, implying scope for further rate cuts, but also still remaining rand supportive, according to Martin Jankelowitz, head of market and economic research at Investment Solutions.
Saying Thursday’s 1% cut in the repo rate was in line with expectations, Jankelowitz said the implications of high real rates and a South African Reserve Bank comfortable with a stronger rand should not be underestimated.
“With inflation expected to remain well within the target range next year, RSA real interest rates are very high. This rate cut brings to 2,5% thus far in this cycle. Even being conservative and assuming the top end of the target range and using a 6% CPIX rate (average likely to be lower), the repo rate still represents a real rate of 5%.
“So real interest rates continue to be punitively high, implying scope for further rate cuts, but also still remaining Rand supportive. We must not underestimate the implications of high real rates and a SARB comfortable with a stronger rand,” he said.
“The global environment, is full of central banks trying to limit their own currency’s appreciation (indeed there is an obsession with keeping competitiveness levels high). In a global search for yield, RSA is an attractive home! Added to this our continued bearish view on the US dollar, bullishness on precious metals prices (gold, platinum), and our bullish rand view remains,’ he added. – I-Net Bridge