In contrast to most other economists, Standard Bank expects the rand to firm to an average of R5,77 per dollar this year from R6,45 last year, according to Standard Bank group economist Goolam Ballim.
Using the Digi-Vote system, 77% of the audience believed that a strong rand is good for South Africa, compared with 21% who said it is bad and only 2% who did not know.
The strong rand and strong consumer demand will put only minor pressure on the current account, which Standard Bank expects to widen to a deficit of 3% of gross domestic product (GDP) this year, from 2,9% last year and 0,9% in 2003.
This current account deficit will be easily covered by capital account inflows, resulting in the seventh consecutive annual balance of payments surplus.
The firm rand should allow the South African Reserve Bank to cut interest rates by 50 basis points this year. Standard Bank then sees monetary policy stable for the following three years, despite a gradual depreciation in the rand to an average annual rate of R7,02 per dollar in 2008.
GDP growth this year is seen at 4,1% from an estimated 3,8% last year before easing to 3,8% next year. The higher growth this year is despite an easing in the growth of household consumption expenditure to 5,2% from 6%, but growth in gross fixed capital formation jumps to 9% from an estimated 7,3%.
Standard Bank does not expect any pressure on the inflation front with CPIX, which is consumer inflation excluding the effects of changes in home-loan rates, staying within the South African Reserve Bank’s target range of 3% to 6%.
Its forecast annual average is 4% this year, from 4,4% last year and 6,8% in 2003. Next year’s average is seen at 4,6%. — I-Net Bridge