A two-day meeting of the South African Reserve Bank’s (SARB) monetary policy committee (MPC) started in Pretoria on Wednesday morning with two-thirds of economists surveyed seeing no change in the current 7,5% repo rate, but a third expecting a 50 basis-points cut.
The no-change forecast is despite the fact that CPIX inflation (headline inflation excluding mortgage costs) has been below the midpoint of the SARB’s inflation target range of 3% year-on-year (y/y) to 6% y/y for 11 out of the past 13 releases. The exceptions were 5% y/y in June this year and 4,8% y/y in February this year.
The economists expecting no change base their forecast on the high economic growth — the third-quarter growth rate of 5,6% quarter-on-quarter seasonally adjusted and annualised was the highest since the first quarter of 1996 — and surging M3 money supply growth, which rose by 15,72% in the year to the end of October from 14,7% in the year to the end of September.
Credit extension to the private sector grew at a rate of 10,21% y/y in October from 8,23% y/y in September.
The economists expecting a rate cut say that the SARB only has an inflation target, and secondary indicators such as economic growth and money supply are only relevant if they have an impact on inflation.
They point to the slowdown easing in unit labour costs, as well as the December drop in the retail petrol price, which indicate that inflation pressures are easing.
There was a 54,196 cents per litre (c/l) over-recovery in the unleaded petrol price in South Africa on December 7, while for diesel 0,3% sulphur it was 48,384 c/l.
The South African retail petrol price could therefore drop by more than 40 c/l on January 5 if the size of the over-recovery continues for the rest of the December averaging period. This runs from November 26 to December 25.
The retail petrol price is adjusted monthly on the first Wednesday of the month in accordance with the previous averaging period’s over- or under- recovery.
The MPC meeting begins on Wednesday morning and ends on Thursday afternoon, as specialist presentations outline both the domestic and international environments.
These presentations will be repeated to the media. At 3pm on Thursday, SARB Governor Tito Mboweni will read out the MPC statement live on South African Broadcasting Corporation television, so that all market participants can receive the information at the same time. — I-Net Bridge