Investors beg for rate cut

Investors are keeping up the pressure on the SA Reserve Bank to cut interest rates fast after the week ended without any announcement that Governor Tito Mboweni's rate-setting Monetary Policy Committee will meet soon.

Mboweni said after the MPC cut the benchmark repo rate 100 basis points to 10.5 percent three weeks ago that he would consider a special meeting if the GDP data signalled a need to act before the next scheduled meeting in April.

This week's data showed the economy slowing by 1.8 percent in the last three months of 2008.

The newly rebased consumer price index of 8.1 percent in January was higher than most had expected, but still confirmed a steady downward trend – if not the "waterfall" that Mboweni had said he hoped for.

Factory gate inflation reinforced the trend on Thursday, coming in below market forecasts at 9.2 percent for January, and the conditions appeared set for the rest of the 200 basis point cut that Mboweni said he had proposed on 5 February.

"There is definitely room to cut by 200 basis points in a six- to eight-week period – now and in April. Nobody is going to whinge about that or say it's politics," said Andrew Canter of Futuregrowth.

Stanlib research chief Kevin Lings said: "There has been a significant expectation built up around the idea of an interim meeting and if you don't get a 100 basis point cut, people will be disappointed."

But on Thursday, Mboweni sought to cool expectations, saying an interim decision was only a possibility and the markets cheered his measured response.

"One needs to be sensitive about calling an interim meeting – have it, announce it and make sure that the communication around it doesn't spell panic. It seems the Reserve Bank is trying to calm things down a bit," said Lings.

Adenaan Hardien of Cadiz African Harvest said it was important to temper escalating negativity and signal the future interest rate course to potential investors.

"As to whether an interim meeting would be sending the wrong signal – well, one could argue that there is more than enough reason for one to panic," he said.

Canter said Mboweni's focus should be on consumers. "He's trying to head off what has happened internationally. He is trying to head off a collapse in demand."

Though the minister of finance, Trevor Manuel, has insisted that South Africa is not in a recession, most analysts believe they are just waiting for the figures that prove what they already know.

Third-quarter growth of 0.2 percent could be revised into the red when the next data set is released and the trends shown in the fourth-quarter figures – mainly the 22 percent shrinkage in the export-led manufacturing sector – leave little doubt that the country has entered a recession as measured by the technical definition of two consecutive three-month periods of contraction.

"Whether the recession started in the third quarter or in the fourth quarter will be academic. We are in a recession and the risk is that it will go on longer than we anticipate now," said Hardien. Cutting interest rates tops most agendas for action to halt the slide into economic contraction.

"The easing PPI should translate into a lower CPI rate in the coming months, thus leaving the gates open for the SARB to cut interest rates aggressively," said Moody's

Lings said damage control was the first priority. "If you cut the interest rate now, you create the expectation that in 12 to 18 months things will be better, which shapes decisions now. If you do it sooner rather than later, then more people should be able to hang onto their houses and their cars," he said.

And if the central bank and the treasury can convince employers that better times are not too far away, some might find ways to survive the trough without cutting jobs and losing skills they have battled to build.

Business Times

Article by: Brendan Boyle -