Johannesburg - The rand’s recent strength could prove fleeting if investors do not find President Jacob Zuma’s cabinet appointments in the key economic cluster, which includes the National Treasury, reassuring.
Rand strength has given the Reserve Bank some breathing room of late, hence the consensus among economists thus far is that there will be no interest rate increase at the conclusion of the bank’s monetary policy committee (MPC) meeting tomorrow.
Zuma is expected to announce his cabinet following his inauguration for a second term as president on Saturday.
High on investors’ minds is whether Pravin Gordhan will stay on as finance minister. Indications so far have been that there is unlikely to be any change in that regard.
Investors also await clarity on how economic policy will be shaped and aligned with the promises that have been made to the electorate in the run-up to the recent election.
If there are no real shocks from the composition of the cabinet, the markets are likely to respond positively.
The Reserve Bank’s task this week is to weigh the economic outlook against what sort of administration might emerge in the coming days to tackle issues such as slow growth and high unemployment.
Jean-Pierre du Plessis, the fixed interest portfolio manager and strategist at Prescient Investment Management, said the 6 percent upper limit of the inflation target band was widely expected to be breached.
“However, counter-balancing this, we have seen a very poor growth picture emerge over the last few months and the rand has recovered from its weakest point of R11.28 to the dollar, back to R10.35, where it was at the end of last year,” Du Plessis added.
Gina Schoeman, an economist at Citi Research, said she expected the annual rise in the consumer price index (CPI) to remain at 6 percent in April.
She said food inflation bucked its seasonal trend in March, rising 1.4 percent month on month.
Schoeman said: “We have adjusted our rate call for the May MPC meeting and now expect rates to remain unchanged at 5.5 percent. We had forecast a 25 basis point [rise] to 5.75 percent, but acknowledge that the rand strength and production figures in the first quarter are likely to force a downward shift in the Reserve Bank’s inflation and gross domestic product outlook.”
Economics consultancy Econometrix also forecast rates would remain unchanged for a number of reasons.
Apart from the strengthening rand, agricultural food prices had fallen back quite sharply in recent months.
Fuel prices had begun to decrease and indicators relating to domestic economic activity had weakened considerably in the wake of the platinum mining strike, it said.
Finally, Econometrix said, disinflationary trends worldwide had gathered momentum in recent months, laying aside erstwhile fears about rising global interest rates.
Dave Mohr, the chief investment strategist for Old Mutual Wealth, said the latest economic data on mining and manufacturing output, vehicle sales and household borrowing had been disappointing, suggesting that the Reserve Bank’s growth outlook of 2.6 percent for this year and 3.1 percent for next year was also at risk.
He said major international agencies, including the World Bank and the International Monetary Fund, had recently cut their forecasts for South Africa’s economic growth. - Business Report