Hon Hai, Tencent to team up in smart car business

RISKS such as a weak rand, volatile oil prices and a slump in the mining and manufacturing sectors could persuade the South African Reserve Bank to keep the repo rate unchanged, say economists.

The bank’s monetary policy committee meet this week to decide whether to keep the repo rate unchanged at 5.75 percent, and the prime rate at 9.25 percent.

Nicky Weimar, senior economist at Nedbank, said the bank expected the Reserve Bank will keep interest rates unchanged.

“The risks to the inflation outlook are probably still tilted to upside, but not dramatically more so than at the time of the previous meeting. The Reserve Bank is likely to note that recent inflation outcomes have been favourable and in line with their market expectations. Inflation is likely to have reached its trough this month and is expected to start edging up in the months ahead, and in our view the key risks to the inflation outlook over the next six to nine months remain global oil prices and the rand.”

She said both were volatile and therefore unpredictable drivers, and that the combination of recovering oil prices and a weaker rand is expected to push inflation back towards around 6 percent by year-end.

She said the economy struggled in January, with the slump in mining and manufacturing production continuing, retail sales losing momentum and car sales slightly better but still weak.

With inflation below 4 percent, low global oil prices were at least likely to contain the pace at which inflation was likely to rise over the next few months.

“With other emerging markets having generally eased monetary policy over the past month, the monetary policy committee has a brief opportunity to pause monetary tightening to support a fragile economy persistently undermined by structural challenges. We believe they will take this opportunity and keep rates unchanged at the March meeting.”

John Cairns, currency strategist at Rand Merchant Bank, said the bank expected the repo rate to remain unchanged, but for a hawkish bias to persist.

“The Reserve Bank will revise its inflation forecast upwards and assess the rise to be on the upside. The growth projections should be unchanged but with greater downside risk. The Reserve Bank will be sceptical of lower inflation expectations.”

Arthur Kamp, investments economist at Sanlam Investments, said it was unlikely the Reserve Bank would raise the rates.

“They are probably going to keep them unchanged. The inflation currency rate of 3.9 percent is quite low. We are probably at the bottom of inflation.”

He said the Reserve Bank might raise interest rates later this year.

Alex Smith, economist at FNB, said he expected the Reserve Bank would leave the repo rate on hold and that the monetary policy committee was quite dovish after the last meeting as the bank cut its inflation and GDP growth forecasts.

Smith said South Africa’s interest rates would be dependent on the timing of US rate hikes as well as the evolution of domestic inflation outcomes. “We think that the hurdle for rate cuts is very high, given the vulnerability of the rand/dollar exchange rate, and the rate hikes will only begin early next year but is likely to be brought forward if the rand weakens further on a sustained basis. This in turn may require that the US Federal Reserve will hike rates more aggressively than is currently expected by the market.” TAIWAN’SHon Hai Precision Industry Co Ltd said yesterday it had partnered Chinese social networker Tencent Holdings Ltd to develop opportunities related to electric vehicles, marking the latest tech foray into “smart” cars.

Hon Hai, WeChat operator Tencent and luxury car dealer China Harmony Auto Holding Ltd signed an agreement to work together in the Chinese city of Zhengzhou, Henan province, the contract manufacturer said.

The partnership would put Tencent on a par with online peers Alibaba Group Holding Ltd and Baidu Inc, which have already moved into the nascent market for internet-connected cars via tie-ups with major automakers.

Hon Hai said the coalition would form a working team drawing on its manufacturing capabilities, Tencent’s internet platform and China Harmony Auto’s dealership network, to explore commercial possibilities in smart electric vehicles.

Hon Hai, known more for assembling the bulk of Apple Inc’s iPhones, already has experience with electric vehicles, having manufactured the touch screens in some cars made by US automaker Tesla Motors Inc.

Hon Hai has manufacturing operations across China and has been working to diversify from the competitive, low-margin contract business. As part of that drive, it bought around 10 percent of Zhengzhou-based China Harmony Auto last year. – Reuters