SARB expected to stay its hand

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BR Economics 5557

Independent Newspapers

Department of Trade and Industry director-general Lionel October (left) and Investec chief economist Annabel Bishop share notes at an economic policy dialogue held on Tuesday at the Industrial Development Corporation offices in Sandton. Photo: Simphiwe Mbokazi

Johannesburg - The Reserve Bank will probably keep interest rates steady at the monetary policy committee meeting that ends tomorrow, though hikes may be on the cards later in the year as inflation pressures remain a worry.

Twenty-three of 30 economists polled by Reuters this week expect the bank to keep its repo rate at 5.5 percent after lifting it by 50 basis points in January, with a recent recovery in the rand helping to ease inflationary pressures.

Only four economists held out for another 50 basis point increase, while three thought the central bank would break with its long-standing tradition of half a percentage point increments and opt for a softer 25 basis point addition.

“Having only just tightened in January, the Reserve Bank in effect took into account the deterioration in inflation we are now seeing,” Standard Chartered analyst Razia Khan said.

The government’s economic policy – and whether there is a lack of clarity over it – was in the spotlight yesterday.

Dennis Dykes, the chief economist for the Nedbank group, said the economic policy environment had been very uncertain.

He told an economic policy dialogue that the passing of the Mineral and Petroleum Resources Development Amendment Bill was a good example of this.

Dykes said other policies creating uncertainty were labour legislation and the new black economic empowerment (BEE) codes of good practice.

Stephen Hanival, the chief economist at the Department of Trade and Industry (dti), took issue with this assertion, saying the department was quite concerned about policy clarity.

He conceded, however, that measures to encourage beneficiation contained in the minerals bill had been communicated quite poorly to business. “The dti feels we need a policy for mineral beneficiation. We would be concerned if we are not sending the right message to the private sector,” he said.

Hanival said that in order to improve the labour market, it was necessary to ensure workers on the shop floor realised they belonged to the economy.

He said there might well be rigidities in the labour law regime but criticised some companies that sought guidance at the department and were found not to comply with the basic conditions of employment as laid down by the law.

Lionel October, a director-general of the dti, said BEE was critical to the democratisation of the economy. The key drag on the economy had been an extremely small middle class.

There were parts of the economy that remained untransformed, he said, citing retail, agriculture and mining.

Also taking part in the dialogue – one of a series hosted by the dti and entitled “The South African Economic Prospects in 2014” – was Annabel Bishop, the chief economist at Investec in South Africa.

Global economic growth continued to show signs of strengthening, led by activity in developed economies, she said.

She added: “The UK economy, in particular, is accelerating and is deemed the eighth-largest economy globally by the International Monetary Fund, with the US the first, China second and India third.”

The other top 10 economies were Japan, Germany, Russia, Brazil, France and Italy.

Any substantial weakening in Chinese and euro zone growth, and hence in South Africa’s export and manufacturing activity, would result in higher unemployment.

Besides the impact of tapering of the US’s quantitative easing and negativity in emerging markets, she said, the rand had depreciated in line with the trend of lower metal prices that began towards the end of 2011.


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