On the back of worse-than-expected trade data, the latest M3 and PSCE figures are another tick in the February interest rate hike column, say analysts.
“These data have acted as counter-weights to the better-than-expected inflation data released earlier in December,” say independent economic analysts RLJP.
Adenaan Hardien, chief economist from Cadiz African Harvest Asset Management, adds: “The bottom line: Not very comforting numbers. With high base effects, ongoing securitisations and successive rate hikes since June, one would have expected weaker credit numbers. The strong credit numbers bolster the case for further tightening.”
According to the Reserve Bank on Friday, M3 money supply growth was 25,33% year-on-year (y/y), considerably above market expectations of just 24%, while
private sector credit extension (PSCE) growth, although moderating downwards as
expected, remained very high at 26,77% y/y. An I-Net Bridge survey forecast
this number would come in at 26,5%.
“In light of rand resilience and stable to moderating oil prices in December, and cooling agricultural food price increases, CPIX could well continue to impress on the lower side leading up to February’s Monetary Policy Committee meeting. While the [Reserve] Bank’s mandate is to manage CPIX inflation within the target band of 3-6% through interest rate adjustments, they will undoubtedly be concerned with the heightened inflation expectations brought about by the robust growth in liquidity,” state RLJP.
Increases in inflation tend to lag increases in money supply by about six months, and with liquidity showing no definitive signs yet of moderating, medium-term inflation expectations are likely to remain buoyed.
“In February, the [Reserve] Bank could well regard the need to bed down inflation expectations as imperative and may seek to justify a 50 basis point rate hike on those grounds,” point out RLJP.
South Africa recorded a worse-than-expected deficit of R10,513-billion for its trade with non-Southern African Customs Union trading partners in November after a surprise deficit of R12,943-billion in October and a deficit of just R175-million in September, according to Customs & Excise figures released on Thursday. Analysts feel this number is not good for the rand, the current account or for inflation expectations.
A potential interest rate increase in the new year will add to the 200 basis points accumulated in 2006 during the current tightening cycle which began in June.
The repo rose as high as 13,5% in September 2002, before receding to 7% in April 2005, with the current tightening cycle beginning in June 2006.
The next MPC meeting is scheduled for February 14 and 15 2007.