Ramaphosa’s win not likely to spur rate cut
This week, all eyes will be on Thursday’s Reserve Bank monetary policy committee meeting and its interest-rate decision.
Many economists expect the repo rate to remain unchanged at 6.75% as the rand remains a risk to inflation.
“The rand still remains vulnerable to fiscal and sovereign credit ratings outcomes during the first quarter of 2018,” says Investec economist Kamilla Kaplan.
SA’s credit rating with Moody’s Investors Service is one notch above noninvestment grade and a downgrade would trigger the exclusion of South African bonds from the World Government Bond index, with the resultant forced selling of local bonds estimated at up to R200bn. While Moody’s has not confirmed when it will review SA again, it is likely to be after the 2018 budget policy statement in February.
“Although the new ANC leadership was welcomed by the markets and the rand moved to stronger levels, decisive … action is required to tackle corruption, restore fiscal sustainability and improve governance at state-owned enterprises to avoid universal junk status,” says Nedbank economist Nicky Weimar.
Given the rand’s continued vulnerability to ratings outcomes and the upside risk to inflation, interest rates are expected to remain unchanged for the rest of 2018, she adds.
“Despite inflation being well contained and a strengthening currency, we believe there are too many risks over the medium term to spur the committee to move in either direction,” says FNB chief economist Mamello Matikinca.
On Tuesday, Statistics SA will release the mining production figures for November, which are expected to have lifted.
“Growth in the mining sector has been aided by higher commodity prices, relative to decade lows reached in early 2016,” says Kaplan.
“The rise in commodity prices is linked to stronger industrial demand and mine supply constraints.”
The retail sales figures for November are expected on Wednesday. FNB senior economic analyst Jason Muscat expects a strong recovery in November and December on Black Friday sales and Christmas buying.
“[We] would not rule out a quarter-on-quarter contraction in the sector due to the distortion of Black Friday volumes. Overall, the benign inflation backdrop, steady interest rates and above inflationary wage increases have been a boost for retail sales, but sales growth is likely to be curbed somewhat in 2018 due to the impact of tax increases in the February budget,” he says.
The 2017 fourth-quarter Bureau of Economic Research Retail Survey indicated that confidence among retailers remained depressed.
“Shopper appetite is likely to remain curtailed by the weak labour market, relatively tight credit conditions applied to households and persistently depressed consumer confidence,” says Kaplan.