A chance of a rate cut by the South African Reserve Bank later this month was put out of reach by this week’s weakening of the rand, persistently high oil prices, a widening current account deficit and robust credit growth.
On Thursday, the Reserve Bank reported that private sector credit extension in February grew by 17,01% compared to a year earlier, up from 15,22% in January.
Merrill Lynch economist Nazmeera Moolla estimates that a 0,5% rate cut would be possible only if the rand were trading at R5,80 to the dollar and oil at $40 a barrel.
On Wednesday, the rand opened at R6,33, before strengthening to close at R6,28.
At the same time, Brent Crude oil was trading at more than $50 a barrel, though significantly below the $56 it touched two weeks ago.
Rand strength is also likely to be threatened by a widening current account deficit.
On Wednesday, the Reserve Bank reported in its quarterly bulletin that the current account deficit for the last quarter of last year stood at R57,3-billion, up from R43,1-billion in the preceding quarter.
This puts the current account deficit at 4% of gross domestic product, its highest level in 22 years.
At the same time, the Department of Minerals and Energy announced a petrol price increase of 38c per litre, bringing the price of petrol in Gauteng to R5 a litre.
That bit of news will, in the months ahead, kill off this week’s star performer: inflation.
On Wednesday, Statistics South Africa reported that the targeted CPIX, inflation minus mortgage rates, stood at 3,1 % year on year in February.
Analysts expect CPIX to remain below 5% this year, a feat that will most certainly require rates to remain at the current level.
Finally, the producer price index, which tends to predict the direction of inflation, stood at 1,2%, down from January’s 1,4%.