Latest news with #LisetteIjsseldeSchepper
The Citizen
23-05-2025
- Business
- The Citizen
Repo rate: Will Reserve Bank cut or err on side of caution?
With inflation at 2.8% in April and the rand currently trading under the psychological divide of R18/$, will the Reserve Bank cut the repo rate? Although economists have been warning that the Reserve Bank will probably not cut the repo rate and rather leave it unchanged on Thursday, there have been calls for a cut after the inflation rate for April was again far below the bottom of the inflation target. Lisette Ijssel de Schepper, chief economist at the Bureau for Economic Research (BER), expects that there will surely be lively discussions among members of the Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) and that it is unlikely to be a unanimous decision. 'While a strong case can be made for further easing as price pressure remains subdued with a relatively benign inflation outlook as the economy is under pressure, we believe the Sarb may again err on the side of caution and keep its rate unchanged. 'When thinking about Sarb decisions in recent months, we started to talk about what the Sarb is likely to do, but this is not always the same as what the Sarb could or even should do. Our decision would have been to cut a bit more aggressively at the start – but then hindsight is 20/20, of course.' She points out that the Reserve Bank of Australia (RBA) cut rates for a second time this year on Tuesday to a two-year low, despite warning about heightened global uncertainty. 'However, with inflation around target and risks seen as balanced, a cut was seen as appropriate, and there is a chance the Sarb agrees with respect to South Africa.' ALSO READ: Inflation for April only 2.8%: Is a repo rate cut coming next week? Nedbank economists: Sarb will leave repo rate unchanged Nicky Weimar and Johannes (Matimba) Khosa, economists at the Nedbank Group Economic Unit, think fear of the unknown will likely keep interest rates on hold. 'We expect the MPC to leave interest rates unchanged. However, it is a difficult one to call. 'MPC members were divided on the past two decisions. As we see it, the decision hinges on how much weight the MPC places on recent price dynamics compared to potential upside risks posed to the inflation outlook by a highly unpredictable global environment. 'If the focus falls on the underlying price dynamics, a strong case can be made for further rate cuts. Recent inflation outcomes have been benign. Inflation increased slightly to 2.8% in April but remained well below the Sarb's 4.5% target.' Weimar and Khosa say the upside risks also subsided since the last meeting in March where the MPC decided to keep the repo rate unchanged. They still see food prices increasing, but point out that a healthy summer harvest will partly contain the impact of higher global food prices. 'Our central forecast is for rates to remain unchanged for the rest of this year. However, if the US Fed cuts rates later this year, the MPC could easily follow without placing undue pressure on the rand. ALSO READ: What does lowest inflation in 5 years mean for repo rate? FNB economists: Sarb will leave repo rate unchanged Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say while the global environment has become less tense, they still believe that persistent policy uncertainty will continue to push monetary authorities to err on the side of caution. 'However, there is ample room for further easing given weak domestic fundamentals, so it will be interesting to see which way the MPC leans. We expect the MPC to keep interest rates unchanged. While we think more cuts will come in the second half of the year, a repo rate cut of 25 basis points, which is the consensus view, would not be too much of a surprise and would suggest that local fundamentals outweighed external headwinds. 'The other factor that could keep the MPC on hold is a shift to a lower inflation target. The immediate aim of restrictive policy would be to guide inflation expectations even lower and embed inflation that is currently at the bottom of the inflation target range.' ALSO READ: What lowering the inflation target will mean for SA Citadel economist: Surprise repo rate cut is unlikely based on previous decisions Maarten Ackerman, chief economist at Citadel, also believes that the Sarb is likely to hold the repo rate as caution remains the order of the day. 'The Sarb will maintain a cautious, wait-and-see approach amid ongoing global and domestic uncertainty, including risks stemming from US trade policy and the broader impact of tariffs. 'Although inflation is well-behaved and below the mid-point of the target range, the Sarb has consistently taken a cautious stance. They are monitoring the global landscape, especially risks tied to US inflation, interest rate differentials and rand volatility, before making any moves.' He notes that while other central banks, such as the European Central Bank (ECB) and Bank of England (BoE) have shown signs of easing, the Sarb is more focused on maintaining stability relative to the US dollar, to preserve the attractiveness of local assets and prevent further rand weakness. 'A surprise rate cut could lift consumer sentiment, but is unlikely given the Sarb's transparent communication and conservative track record. If they have not acted in previous windows of opportunity when inflation was low, it is unlikely that they will surprise now. 'In the face of market volatility, a clear and credible fiscal roadmap alongside monetary stability will be key to positioning South Africa for recovery and resilience in the months ahead.'
The Citizen
09-05-2025
- Business
- The Citizen
Weekly economic wrap: rand had a remarkable week but gold slips
The rand showed its resilience, coming back from trading close to R20/$ last week to trading closer to R19/$ today. It was a quiet week on the local economic front, but the rand had a remarkable week, although most of the factors that supported the rand made the gold price slip. Lisette Ijssel de Schepper, chief economist at the Bureau for Economic Research (BER), says the rand exchange rate had a remarkable week, trading about 2% stronger against the dollar, euro and pound by Thursday compared to last week. 'While it is always difficult to pinpoint the exact driver, it is typical of the rand to increase sharply (it was trading near R20/$ this time last month) and then recover at a rapid pace too. A sustained streak of capital inflows in South Africa's equity market helped, with non-residents being net buyers of South African shares for the longest streak since August 2022.' However, De Schepper notes that despite inflows, the JSE ALSI closed 0.8% lower compared to a week ago. Bianca Botes, director at Citadel Global, says emerging market currencies, including the rand, also beneffited from the improved global outlook. 'The rand approached one-month highs, driven by improved global sentiment and risk appetite, while supported by positive domestic developments such as Eskom's assurances on power supply and new government economic initiatives.' 'The rand is trading 1.15% stronger against the greenback for the week and is up 1.86% against the euro and 1.74% against the pound.' The rand was trading at R18.26 on Friday afternoon. ALSO READ: SA's economic growth outlook growing increasingly dim Gold slips due to trade optimism, while oil advances Meanwhile, gold prices slipped for a third straight session overnight, dropping to around $3,290/ounce as risk appetite improved on the back of trade optimism, Botes says. 'The prospect of easing US-China tensions and the new US-UK agreement reduced demand for safe-haven assets. The Fed's decision to keep interest rates steady, coupled with warnings about inflation and unemployment risks, reinforced a cautious policy outlook. Even with recent declines, gold was still set for a weekly gain, reflecting ongoing investor caution amid a complex global backdrop.' Botes points out that Brent crude prices edged higher on Friday, approaching $63/barrel and building on the previous day's momentum. 'The market found support from renewed optimism surrounding upcoming US-China trade negotiations, with investors hopeful that progress could be made between the world's top two oil consumers.' 'The announcement of a US-UK trade deal further lifted sentiment, while a sharper-than-expected decline in US crude inventories earlier in the week provided an additional boost. Despite these positives, oil's advance was tempered by concerns over the expanded Organisation of the Petroleum Exporting Countries, OPEC+'s plans to increase output, ongoing uncertainty about the US economic outlook, and speculation that a US-Iran nuclear deal could bring more supply to the global market.' ALSO READ: SA loses R30 billion in revenue due to illicit trade in cigarettes and liquor The sad story of manufacturing production According to Statistics SA, factory output declined by 0.8%, which was better than the 3.2% drop last month, but it was the third consecutive decline and lower than the 0.8% growth consensus forecast. Nkosiphindile Shange, economist at the BER, points out that the biggest drag came from a 2.5% drop in petrochemicals (-0.5%) and the electrical machinery subsector (-12.2%). 'Output fell by 2.3% in the first quarter as seasonally adjusted monthly production came in below expectations and declined by 2.2% in March 2025 compared to an expected 0.4% growth. The drop in April's Absa PMI, released last Friday, does not bode well for a strong start to the second quarter.' ALSO READ: Budget 3.0 should not increase SA's debt, rather cut expenditure — BLSA S&P Global South Africa PMI improves after four months of contraction The S&P Global SA PMI increased from 48.3 points in March to 50 points in April as output and new orders ticked up for the first time in five months. Shange says robust sales in the services sector supported the increase in activity, while there were modest upturns in the trading and construction sectors. 'Manufacturing declined in line with the Absa PMI tracking the factory sector specifically, and due to currency weakness, input price pressures increased.' Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, agree that the manufacturing sector continued to struggle in March. 'The rate of decline in manufacturing output at least moderated from a sharp 3.2% in February to 0.8% in March.' 'The weakness was widespread, but the sharpest declines occurred in petroleum, chemicals, rubber and plastics as well as electrical equipment. Over the quarter, the sector contracted by 2.3%, a sharper decline than in the final quarter of 2024 (-0.9%).' 'This means that manufacturing will again be a drag on GDP. Despite less severe load shedding and marginal gains at the ports, subdued domestic and global demand has led to ample spare capacity and weak commodity prices. These circumstances, within the context of high operating costs, have weighed on the industry's output.' ALSO READ: Toyota Hilux and Suzuki Swift lead new vehicle sales in April Increase in new vehicle sales New vehicle sales increased by 11.9% in April, after rising by 13.3% in March. Passenger vehicles increased by 16.9% to 30 101 units. Car rental sales accounted for 8.9% of passenger vehicle sales. Total commercial vehicles rose by 1.3% after 13 consecutive months of contraction. Sales of light, medium and heavy commercial vehicles all increased, with only extra-heavy vehicles and buses contracting. Total exports fell by 6.6% or 2 266 units. Passenger vehicle sales fell by a sharp 32.9% after growing by 7.1% in March. Commercial vehicle exports also declined by a smaller margin of 1.4%. According to naamsa, the poor export performance was due to the closure of a major Original Equipment Manufacturer (OEM) for most of the month. The OEM shut down to upgrade the facility to manufacture a new mode, Matshego and Nkonki say.
