Most economists expect no 2006 rate cut

The majority of economists expect no change in monetary policy in South Africa in 2006, but there are economists who are forecasting cuts, and those who are looking for increases.

A no-change scenario is what the majority of economists forecast for 2004 and 2005, after the South African Reserve Bank (SARB) cut interest rates by 550 basis points in 2003 after increasing them by 400 basis points in 2002.

At the end of 2002, economists had expected only 300 basis points’ worth of cuts in 2003 with a further 100 basis points cut in 2004.

The SARB surprised the markets by cutting by 50 basis points in August 2004 and by a further 50 basis points in April this year.

The market is divided, with the forward interest-rate market pricing in a 50 basis-point cut in the middle of 2006, while 83% of South African fund managers in the Merrill Lynch December 2005 survey expected the next move in the repo rate to be higher.

Some economists remain optimistic that a single-digit prime rate will be in place before the end of next year, with the most optimistic looking for a 9% prime compared with the current rate of 10,5%.

Some economists worry about the delayed impact of higher oil prices on inflation and point to the warning issued by the SARB’s monetary policy committee (MPC) in October as a reason for expecting higher interest rates next year.

The MPC said at the time that the risks to the inflation outlook have increased due to the high and volatile international crude oil price and will not be ignored.

“The increased risk of possible pass-through leading to pronounced second-round effects on CPIX inflation must inform policy going forward,” the MPC said.

“Although there is no conclusive evidence of pass-through at present, and the monetary policy committee has not judged it necessary to change the monetary policy stance at this meeting, these developments will be closely monitored,” it added.

In 1999, the median forecast of economists was that prime would return to the March 1998 low of 18,25%, which would be the bottom of the easing cycle.

Instead, the 1999/2001 easing cycle saw the prime rate bottom at 13%, 1 250 basis points below its September 1998 peak of 25,5%. — I-Net Bridge

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Related stories

Mandela steals Zuma’s coronation

Nelson Mandela on Sunday proved he is still the giant of African politics when he made a surprise appearance at the ANC's final campaign rally.

SA February PPI seen steady at 5,5% y/y

South Africa's February 2005 producer price index (PPI) is expected to remain at January's 5,5% year-on-year (y/y) increase. According to an I-Net Bridge survey of economists, the range is from 4,9% y/y to 5,9% y/y. The optimists expect the stronger rand to have kept factory gate prices subdued, while the pessimists believe rising oil and other commodity prices will lead to higher producer prices.

SA nuclear firm awards design contract

The Pebble Bed Modular Reactor's (PBMR) fuel division announced on Wednesday that it had awarded a design contract worth R10,5-million to a South African design house, Thermtron Projects, in a crucial second step in the PBMR fuel manufacturing technology, to prove sustainability on an industrial scale.

Petrol price: Good news may be in store

The Department of Minerals and Energy could implement a retail petrol price cut of about 15 cents per litre (c/l) on March 1, given recent trends in both the rand exchange rate and oil prices, reversing the 14c/l increase implemented this month. The retail petrol price is adjusted monthly on the first Wednesday of the month.

Manuel tables conservative Budget

South African Finance Minister Trevor Manuel on Wednesday tabled a conservative Budget, eschewing corporate and individual income tax rate cuts, even though the revenue over-run in the 2005/06 fiscal year is projected at R41-billion. Compared with last year's Budget, when the fiscal deficit to gross domestic product ratio was forecast to remain near 3% over the medium term, Manuel this year reduced that to the 1,5% level.

Petrol price could drop by 12 cents a litre

The Department of Minerals and Energy could implement a retail petrol-price cut of about 12 cents per litre (c/l) on March 1, given recent trends in both the rand exchange rate and oil prices. 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.

Subscribers only

Toxic power struggle hits public works

With infighting and allegations of corruption and poor planning, the department’s top management looks like a scene from ‘Survivor’

Free State branches gun for Ace

Parts of the provincial ANC will target their former premier, Magashule, and the Free State PEC in a rolling mass action campaign

More top stories

Mboweni plans to freeze public sector wage increases for the...

The mid-term budget policy statement delivered by the finance minister proposes cutting all non-interest spending by R300-billion.

SAA to receive R10.5-billion government bailout after all

Several struggling state-owned entities received extra funds after the medium term budget policy speech

Malawi court judges win global prize

Members of the small African country’s judiciary took a stand for democracy to international approval

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday