Hefty rate cut likely on Covid-19 threat
Another hefty interest-rate cut is expected from the SA Reserve Bank as Covid-19 batters SA’s economy and reduces inflationary pressure on the rand.
Another hefty interestrate cut is expected from the SA Reserve Bank as Covid-19 batters SA’s economy and reduces inflationary pressure on the rand.
The consensus among eight economists polled by Bloomberg is for a 50 basispoint cut, which will bring the repo rate down to 3.75%, from 6.5% at the beginning of 2020.
Senior economist at BNP Paribas SA, Jeffrey Schultz, expects a 75 basis-point cut, but the bank could cut as much as 100 basis points, given the outlook for inflation.
SA’s inflation rate was headed towards 2% in July, and should remain lower than the Bank’s 3%-6% target band in the following months, said Schultz.
The Bank is likely to cut rates by another 125 basis points in 2020, and SA’s weak economic outlook was a reason to bring these cuts forward, he said.
Mining and manufacturing data for February are also due on Tuesday, though these are of diminished utility given the effect on these sectors of SA’s lockdown in March.
Mining is expected to have risen 4.8% year on year, according to the Bloomberg consensus, and manufacturing is expected to have fallen an annualised 2.8%.
Production in both sectors will have been suppressed by weak domestic and external demand as well as by the rotational electricity load-shedding in February, said Investec economist Kamilla Kaplan.
The data will not reflect the full effects of the Covid-19linked restrictions in SA, as these were implemented at the end of March.
“However, the performance of the sectors may have been impacted by the global supplychain disruptions resulting from the global coronavirus outbreak and the consequent reduction in international trade,” Kaplan said.
On Wednesday, data is expected to show that SA retail sales grew 1.1% year on year in February.
Advance indications provided by the BankservAfrica Economic Transactions Index for February reflected an increase in the volume of transactions of 4.9% year on year compared to a rise of 3.2% in January, said Kaplan, but the underlying momentum in retail volume sales growth was nevertheless muted.
Other surveys showed weak conditions in the first quarter, as consumers experienced slow income growth, alongside relatively modest rates of household credit extension and depressed consumer confidence levels, Kaplan said.
On Tuesday the Treasury will hold its first weekly government bond auction since announcing the issue size will increase R1.57bn, or 34%, to fund the growing budget deficit.