Kevin O'Grady

Economics Editor

UNLIKE the Easter miracle of the resurrection, hopes for an interest-rate cut soon are likely to remain dead and buried after this week’s economic data.

Not even expected record low CPIX (consumer inflation excluding mortgage costs) inflation in February, in figures to be released by Statistics SA (Stats SA) tomorrow, will resurrect hope that the Reserve Bank’s monetary policy committee will proceed with anything less than extreme caution when it meets on April 13 and 14.

The inflation figures, as positive as they are likely to be, are not the only ones that will be scrutinised by the Bank when it makes up its mind on the immediate direction, if any, of interest rates.

Some of the others, particularly latest data due on Thursday on growth in demand for credit, will be watched just as keenly.

In fact, the inflation data may be the least likely show stoppers, given what has happened to the value of the rand and the price of oil since they were compiled.

These variables, says JPMorgan economist Marisa Fassler, probably mean that the attention of the market is focused "further out, when CPIX inflation is seen rising back towards 4,5%", compared with the 3,2% median forecast for February of the 11 economists surveyed by Bloomberg.

"Indeed, optimism about the inflation outlook is likely to be tempered by the weaker tone in the rand and persistently high global oil prices. In rand terms, oil prices are up 12% since the end of February and 36% since the start of the year."

While the oil price eased off slightly yesterday, the rand continued to fall, approaching its lowest level in a month at around R6,24 to the dollar. In recent months, the inflationary effects of higher oil prices have been negated to an extent by the strong rand, which cuts down the cost of imports.

A reversal of the rand’s stronger trend, although it is by no means a certainty, would therefore amplify the effect of record-high oil prices on the local economy, as well as push up the prices of other imported goods. Hence, the less than optimistic outlook for inflation.

The same can be said for Thursday’s producer price index (PPI), which is expected to have increased at a subdued year-on-year rate of 1,4% in February — the same as a month earlier — according to the Bloomberg survey.

Fassler says this is "thanks to the still-strong rand and falling food prices. The sharp upward move in oil prices since the middle of February will probably only be reflected in the PPI over the following months."

Brait economist Colen Garrow agrees that it is not the "negligible impact modest fuel price movements" had on February’s inflation data that are at issue, but rather the consequences of the subsequent 42c/l fuel-price hike on the inflation data still to be released for March.

A surge in borrowing by households and companies in February is also expected to "weigh in favour of rates being left unchanged next month", says Garrow, referring to Thursday’s release by Stats SA of the latest data on the extension of credit to the private sector.

The monetary policy committee has flagged consumer exuberance, in the form of unabated demand for credit, as an inflation risk in its past two monetary policy statements, and continued strong growth in February is likely to raise eyebrows among committee members.

The Bloomberg survey shows a consensus forecast of annual 16,8% growth in February, up from 15,2% the month before, as consumers continued to take out loans to buy houses, cars and household appliances in the face of the lowest interest rates in 24 years.

"Driving credit growth is a combination of low interest rates, which has made debt cheaper, and growing disposable income, which has made debt affordable," says Sanlam chief economist Jac Laubscher.

Razia Khan, Africa economist for Standard Chartered, says credit extension is still too high to justify an interest-rate cut next month.

Growth in M3 money supply, the broadest measure of the amount of money in circulation, is also released on Thursday and is predicted by the economists surveyed by Bloomberg to have accelerated to 12,2% year on year in February from 12% a month earlier.

Another major focus this week will be the Reserve Bank’s Quarterly Bulletin tomorrow, which will provide detail on the state of the balance of payments in the fourth quarter of last year.

After nine trade deficits in the past 10 months, and another expected in the February trade balance when it is released on Thursday, all eyes will be on the extent to which the deficit on the current account of the balance of payments grew in the fourth quarter.

As a growing current account deficit would weaken the rand, because of increased demand for dollars to finance surging imports, this could also count against the rate-cut advocates come next month. With Bloomberg