Reserve Bank walks tightrope

Lesetja Kganyago, the governor of the South African Reserve Bank. File picture: Carlo Allegri

Lesetja Kganyago, the governor of the South African Reserve Bank. File picture: Carlo Allegri

Published Nov 19, 2015

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Johannesburg - Reserve Bank governor Lesetja Kganyago will walk a tightrope today between contrasting signals about whether or not to raise interest rates.

On the one hand, Kganyago faces a local economy that is in a tough place and this was reflected yesterday by lacklustre retail sales figures contrasted against raising consumer price inflation (CPI) data, which was also released yesterday. At the same time he has to keep an eye peeled on the US Federal Reserve.

Economists were divided about whether Kganyago would cut or raise rates but they were in strong agreement that he faced a tough act in shadowing the Fed, which they forecast would hike rates next month. Figures out of Statistics SA yesterday indicated that real retail sales growth dropped to 2.7 percent year on year in September, from August’s revised 4 percent and were artificially boosted by a statistical base effect.

“Without the distortion of the statistical base effect, retail sales would have come out at only 0.9 percent year on year in September,” Investec’s chief economist Annabel Bishop noted.

The retail sales got their boost mostly from general sales and were driven by textiles, clothing, footwear and leather goods sales, while consumer lethargy came into play with the downturn in household furniture, appliance and equipment sales, which fell 4.3 percent year on year as consumers continued to focus on necessities.

Core inflation for October came on the downside at 5.2 percent year on year against a consensus of 5.3 percent, the same figure that came out in September, while the headline measure of inflation came up at 4.7 percent, up from the 4.6 percent recorded in September. Standard Bank chief economist Ballim Goolam said the bank was of the opinion that Kganyago would not raise rates but warned of looming food inflation pressures and inflation risks spawned by the weaker rand.

“It is quite probable that the Reserve Bank would raise interest rates in early 2016, especially in the aftermath of the imminent rate tightening by the US Federal Reserve Bank,” he said.

Peter Attard Montalto, a London-based economist for Nomura, said the data did not shift their forecast for a hike today.

“There were a bunch of surprises for us following the publication of CPI data – a little bit to upside on the headline (ie non-core) and to the downside on the core measure. However, the overall forecast does not change and the bigger moves higher in the headline and core should come from the December print, out in January,” Montalto said.

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