Weekly economic wrap: Rand strongest since December, but falling again

The Citizen

2 days ago

Although the rand kept its head up all week and strengthened even more on the back of the repo rate cut, it lost traction on Friday afternoon.
The biggest economic news of the week was the mostly unexpected cut in the repo rate of 25 basis points, while the rand kept its momentum and reached its strongest level since December. Gold, on the other hand, was not so lucky.
Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research, says the Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) decided to cut the repo rate by 25 basis points to 7.25%, which means that the prime interest rate is now 10.75%.
'The dovish tilt, with all six members voting for a cut and one member even preferring a 50 basis points cut, was surprising, but welcome. In addition, the clear signalling around moving to a 3% inflation target is positive and removes uncertainty.'
Bianca Botes, director at Citadel Global, points out that the rand strengthened to its best level since December, helped by a weaker dollar and the Sarb's repo rate cut, which aims to support the local economy and as inflation remains low.
Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, also point out that the rand gained further ground this week. 'The Sarb's interest rate cut and the announcement of the imminent lowering of the inflation target boosted sentiment, lifting the local unit to R17.80/$ late Thursday, and on Friday morning it was trading around R17.83/$.'
Unfortunately, the good news did not last, and the rand traded at R18.04 on Friday afternoon.
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Decrease in prices of oil and gold
Oil prices dropped for the second week in a row, with Brent Crude trading near $63/barrel, Botes says. 'This decline is driven by investors remaining uncertain about what will happen with US tariffs, as the legal back-and-forth is making the market more unpredictable.
'Traders are also watching the upcoming expanded Organization of the Petroleum Exporting Countries (OPEC+) meeting, where major oil-producing countries are expected to agree on increasing oil production in July.'
Botes says there is extra tension because Kazakhstan is producing more oil than it is supposed to, which could lead to even more supply than planned. On the demand side, recent US economic data shows the economy shrank slightly in the first quarter, raising worries that people and businesses might use less fuel.'
She says gold prices also slipped to around $3,290/ounce and are heading for a weekly loss, as investors wait for the PCE index, which could affect future interest rate decisions. Investors also remain cautious as they wait for more clarity on US inflation and interest rates.
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Producer price inflation remains muted
Lebohang Namo, economist at the BER, says producer price inflation (PPI) for final manufactured goods, remained unchanged at 0.5% in April. 'Like consumer inflation last week, this was above consensus expectations following a string of downward surprises.'
Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say continued deflation in fuel, paper products and transport equipment helped keep overall producer inflation contained in April.
Nkonki and Matshego, economists at the Nedbank Group Economic Unit, say April's producer price inflation provided more evidence of subdued price pressures. Producer inflation held steady at 0.5%, matching our forecast and exceeding market expectations of 0%.
'Deepening fuel price deflation offset higher food prices. Elsewhere, price pressures remained relatively subdued. Food, beverages and tobacco inflation accelerated from 4.1% to 4.7%, while deflation in coke, petroleum, chemicals, rubber, and plastics deepened from 4.1% to 5.5%. Producer inflation will likely rise moderately off a low base in the months ahead.'
ALSO READ: Salaries decreased by 2% in April, but higher than a year ago
Private sector credit extension increased in April
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say Private Sector Credit Extension (PSCE) growth increased to 4.6% in April, up from 3.4% in March, largely driven by an acceleration in corporate credit growth, which increased to 6.0% from 3.9%.
Household credit growth was 3.0%, marginally higher than the 2.9% recorded in March. Within corporate credit, growth in general loans and advances rose to 7.4% from 4.3%, overdraft growth climbed to 12.6% from 10.3%, and mortgage advances grew by 6.2%, slightly up from 6.1% in the previous month.
Instalment sales credit growth remained stable and above inflation at 5.0%, compared to 5.1% in prior months, while credit card growth declined sharply to 0.6% from 2.5%. In the household segment, general loans and advances and overdrafts remained in contractionary territory, while mortgage advance growth was stable at 2.3%, unchanged from the prior month.
Growth in other household credit categories remained above inflation, with instalment sales credit at 6.2% and credit cards at 8.5%.
Nkonki and Matshego say the growth in broad money supply improved slightly from 5.8% in March to 6.1% in April, exceeding their expectations of 5.9%. 'The boost in PSCE came from faster growth in loans and advances and a less severe decline in bills and investments.
'The most significant momentum came from companies, where advances jumped from 5.5% to 7.5%, amplified by last year's low base. Even so, company overdrafts and general loans accelerated, while commercial mortgages and instalment sales and leasing finances held relatively steady.'
They also note that the slow recovery in household loans continued, rising slightly from 2.9% to 3%. 'The uptick came mainly from a rebound in credit card usage, while vehicle finance and home loans were unchanged. We expect the recovery in credit demand to gain moderate upward traction in the months ahead, supported by easier financial conditions and firmer domestic demand.'