NEWS

 

Investec: Rate cut more likely

Johannesburg - There is a growing likelihood that interest rates may be cut by another 50 basis points in July, according to the Investec Group economics unit.

"We expect a 50 basis point cut at the July monetary policy committee meeting, provided that the rand does not weaken on the year by then," said Investec Group economist Annabel Bishop.

The Unit based its forecast on a number of recent economic data including the Purchasing Managers' Index (PMI) and first quarter job losses (171 000 jobs lost).

The PMI, which indicates the level of activity in manufacturing, fell for the third consecutive month in May. Investec said this had implications for the April manufacturing production and sales data to be released by Statistics South Africa this week.

"April's reading of manufacturing production is likely to reflect this with a substantial fall in output on the month, due also to the timing of Easter," said Bishop.

While the Soccer World Cup, starting on Friday, is expected to have positive spin-offs for the country, it is expected to have negative implications for the manufacturing production side.

"Soccer World Cup induced work absenteeism, both formal leave days taken and 'sick days', and the slowdown in the pace of work as workers attention is diverted to more exciting matters will afflict the economy's gross domestic output in June and July," stated Bishop.

The unit said all these factors combined were likely to have a significant impact on all production and could detract as much as 0.3% from gross domestic product.

The still-weak private sector borrowing, as indicated by recent figures from the South African Reserve Bank, is adding more pressure to the economic recovery.

"The private sector is still deleveraging, indicating that households are under pressure financially and there is unlikely to be a robust recovery in this sector," said Bishop.

Bishop added that the SARB's Quarterly Bulletin, which contains information such as household debt to savings and disposable income, will indicate whether there will indeed be a need for another rate cut or not. The bulletin is due for release later this month.

"In addition, readings that the SARB calculates on financial assets and net wealth, consumption expenditure, real and nominal, and debt and income readings, along with capital gearing will likely support a rate cut," concluded Bishop.

 

Source: www.fin24.com

<back

 



  

 

Copyright © 2008 Africagrowth Institute. All rights reserved