SA ecnomy healthy – Bank

Although inflation is trending higher, it is forecast to remain safely within the Reserve Bank’s target band of 3 percent to 6 percent. The central bank’s main challenge at the moment, apart from external factors such as the oil price, is credit growth, which shows no signs of abating, and is slowly becoming more of a threat to inflation. CPIX (consumer price index excluding mortgage costs), the bank’s targeted measure of inflation, rose to 4,5 percent year on year in February. Credit growth, on the other hand, rose 21,8 percent year on year, driven higher by strong demand for mortgage advances. Bank governor Tito Mboweni last week sent a clear message that interest rates would not be trimmed when the monetary policy committee meets later this month to deliberate on the next interest-rate move. Brait economist Colen Garrow says: “Tighter interest rates may boost the currency, encourage imports, and assist the bank in achieving its inflation target vis-‘-vis making the imported component of producer inflation tame enough to influence the inflation target.” With inflationary pressures showing a tendency to rise moderately, Garrow says it will be interesting to see the wording of the statement it releases after its meeting next month. This week the health of the economy is in for a check-up once more, with the release of secondary data due. “With private-sector credit extension running well ahead of expectation, the consumer is clearly still being supported by high leverage,” says Merrill Lynch economist Nazmeera Moola. First up is the release of Investec’s purchasing managers’ index (PMI) today. “While the PMI has recorded sub-50 results for the past two months, the outlook that managers have had on business conditions has remained upbeat ‘ and actually improved,” says Merrill Lynch’s Refilwe Moloto. “This, together with the positive outlook for managers, leads us to expect a return to a neutral stance for the manufacturing industry.” Tomorrow the South African Chamber of Business releases business-confidence index data for last month. Also released tomorrow will be the National Association of Automobile Manufacturers of South Africa vehicle sales figures for March. Although motor vehicles sales have grown strongly over the past year, data for the first two months of this year show some consolidation. In January sales grew 18,6 percent year on year, while in February sales recorded growth of 14,5 percent. “Continuing consolidation largely depends on whether or not tax relief announced in February provides new stimulus to this consolidating curve,” says Standard Bank economist Rashika Lalla. The latest quarterly bulletin shows household debt as a percentage of disposable income rose to a record 65,5 percent in the final quarter of last year. “So, although taxpayers now have more money in the bank, they are still faced with decisions about how to manage debt repayments and divert spending to deal with the higher costs of goods and services,” says Lalla. One such commodity is petrol, she says, which was expected to jump by 21c/litre-24c/litre. This week, Statistics SA also releases retail sales figures for January. Last year was another bumper year for retailers as consumers took advantage of favourable interest rates and higher disposable incomes. Finally, tomorrow, the Reserve Bank releases last month’s gold and forex data. The bank increased its accumulation of reserves at a more tepid pace in February, notes Lalla, after January’s robust accumulation. Gross reserves stood at US$22 billion in February. A higher gold price during last month is expected to have led to higher gold reserves accumulation by the central bank. This week is also expected to be a good one for the rand, with the gold price expected to stay at recent 25-year highs. ‘

April 2006
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