Indications that South Africa’s economy remained weak at the start of the third quarter of this year make it unlikely that the South African Reserve Bank’s (SARB) monetary policy committee will hike interest rates tomorrow (Thursday, 20 Sep).
The third quarter saw a slow start as July’s mining output contracted 5.20% and the manufacturing and retail industries reported modest gains. Economists expect the Reserve Bank to cut its GDP growth forecast for this year from 1.20% to 0.60% or 0.70%.
The prolonged emerging-market currency crisis, which caused the rand’s fall to its weakest levels in two years, has raised inflationary expectations. Economists have revised their predictions for the first interest rate hike in months to later this year, rather than early next year.
We expect the SARB will keep the repo rate on hold this Thursday. As reported in the media, the SARB does not like to hike interest rates during a technical recession, “preferring to take a longer-term view”. Our inflation rate unexpectedly slowed to 4.90% for August, from a 10-month high of 5.10% in July, Statistics South Africa reported today. Some economists expected a rise to 5.20% for August.
Although rate cuts are always the ideal outcome, at least over the short term, we think it’s unlikely. That said, we believe hikes are even more unlikely. There are always changes to macroeconomic data, therefore, our PSG Wealth research team continues to monitor activities, both locally and international, and how our underlying managers use these developments in their funds. We trust our underlying managers to make the necessary changes, if data warrants it, to avoid risk and reap the rewards for our clients.