Economists are predicting that this election year will be a stable one, with the rand/dollar exchange rate hovering between R6 and R8, and the interest rate remaining steady.
Standard Bank economist Monica Ambrosi said on Tuesday the rand would end the year on an annual average of R6,60 to $1.
The rand would average R6,30/$1 in the first quarter of the year, before going up 20 cents to R6,50 in the second quarter. The third quarter average would see a further 20 cent increase to R6,70, until it reached R6,84 in the fourth quarter.
”At the moment it appears to be a stable year domestically and internationally,” she said.
Ambrosi said there could be a further interest rate cut of 50 basis points in February, bringing the prime interest rate to 11%.
”Beyond that I don’t think that interest rates will move up or down. I believe they’ll end the year flat at 11%,” she said.
The key determinant to the interest rates being increased would be the rand’s performance.
”If there is a decline in the rand then the interest rates might have to be raised. At the moment there is very little scope for these events to be worse than we expect. Nothing dramatic will happen that will warrant a tightening in monetary policy,” she
said.
However, Econometrix economist Michael Keenan ruled out a further interest rate cut this year.
”We’re expecting some weakness to creep in. But its still early days. We’ve had a lot of interest rate cuts already and the cautious tone of (Reserve Bank governor) Tito Mboweni in December suggests that there will be no more cuts. We’ve come along way already but we are not out of the woods yet and we don’t want the monetary easing to put undue inflationary pressures on us in 18 months.”
He, like Ambrosi, added that the international markets were expecting a 50 basis point cut in February.
Ambrosi said the elections — widely expected to be held in April — would have no real impact on the markets or the rand.
”The outcome of the elections are very certain, there is little room for violence or anything going wrong. We don’t believe that the elections will have an impact. The way the rand has come under demand internationally shows there is confidence in the country … there are no jitters about the elections.”
Keenan agreed, saying expectations were that the elections would take place without much disturbance.
”Things will stay relatively stable. the only real political threat is Zimbabwe but even that has sort of fallen into the background,” he said.
He warned that while a stable year was currently being forecast, higher than inflation wage demands and credit hungry South Africans could hurt the economy.
”South Africans are bad when it comes to credit. When credit is cheap they consume. We can see this over the December period. You can’t have guys saying they want the interest rates to come down so they can spend more.”
He added that unreasonable wage demands could also hamper the economy.
”Wage demands are still coming in higher than the prevailing inflation rates … everybody has to come on board and adopt this inflation targeting approach,” he said.
Econometrix predicts that the rand would average R7.71/$1 in the first quarter of the year, before going up to R8,54/$1 in the second quarter. In the third quarter it would fall to R7.92/$1, finally ending on R7,80 in the fourth quarter.
Director of the South African Petroleum Industry Association (Sapia) Colin McClelland said that these forecasts suggest that the prices of petrol, diesel and paraffin would go up only by five or ten cents over the year.
He said while it was difficult to predict what the oil prices would do, in terms of the rands expected performance it should be a stable year.
”It should be a relatively stable year, rand based. There will be some increase but nothing dramatic.” – Sapa