The surprise move by the South African Reserve Bank to bring its monetary policy committee (MPC) meeting forward has led to increased suggestions that the bank is keen to cut rates aggressively.
This is according to currency strategist from Rand Merchant Bank, John Cairns, who says that many people could also see the move as insensitive to local market dynamics.
This comes on news that the central bank has brought forward the date of the next MPC meeting to February 4 and 5 from February 11. South Africa’s budget is also due for release on February 11.
The announcement also came on the day that a 4% slump in local retail sales in November was reported.
‘We’re still on for only a 50 basis point move,” says Cairns.
However, the analyst points out that the latest international evidence to look at is Brazil, which managed to cut a larger than expected 100 basis points on Wednesday to 12,75% without a fall in the currency.
South African interest rates were last cut on December 11, taking the repo to 11,5%.
A commentator from the money market says that the current cutting cycle could last for a minimum of 300 basis points, which is being factored in by that market.
Inflation in South Africa is due to fall rapidly this year as fuel and other prices and demand dip, and as a new weighting structure pulls the numbers lower off very high bases.
Consumer inflation less mortgage costs (CPIX) in South Africa has been above the upper 6% limit for 20 months running. — I-Net Bridge