Ayanda Shezi

Economics Correspondent

THE Reserve Bank’s monetary policy committee (MPC) meeting on Wednesday and Thursday will dominate SA’s financial calendar this week.

The Bank is widely expected to leave interest rates unchanged at the meeting. However, after surprising the markets with a rate cut in April, a rate cut at this week’s meeting cannot be ruled out.

In April, Bank governor Tito Mboweni said the monetary policy committee had noted with concern evidence of a slackening in activity in some sectors of the economy after the move by the rand to a higher trading range in the past six months.

"It remains the view of the MPC that a competitive and stable exchange rate would contribute to continuing sustainable growth in output and employment," Mboweni said at the time.

Comments by the African National Congress (ANC) calling for a more "competitive" exchange rate followed a few weeks later.

The rand’s gains over the past three years have harmed the manufacturing and mining sectors of the economy, which together account for about 23% of gross domestic product (GDP).

Fuel prices rose by a cumulative 102c/l between March and May, which is the sharpest rise yet in such a short period.

"While this factor on its own might not have fundamentally altered inflation expectations, it is expected to have had a negative impact," says Standard Bank economist Rashika Lalla.

This, as well as the recent weakness in the rand exchange rate — driven not only by the resurgence in the dollar but also by a lower euro, sliding in the wake of the French rejection of the European constitution — "should prove sufficient for the Reserve Bank to keep the repo rate on hold", Lalla says.

The Bank’s announcement coincides with the release of the inflation expectations survey for the second quarter of this year by the Bureau for Economic Research, which the Bank uses to gauge inflation expectations.

"A weaker rand, although desired by the Bank (as indicated in the Bank’s monetary policy review in May) places upward pressure on inflation," says Lalla.

Thus, although another interest rate cut would probably help keep the rand weak — particularly now that the dollar is strengthening and US interest rates are moving beyond 3% — Lalla says "the Bank is unlikely to add fuel to the fire," because it could put too much pressure on the currency, and hence inflation.

Also, the Bank will release figures for gold and forex reserves for last month, and analysts say that these figures will be watched closely to see whether the Bank has absorbed some of the inflows from the Barclays-Absa deal.

Since news of that deal was announced, markets have speculated on whether the forex inflows would go directly to the Bank in an off-market transaction, says Standard Chartered Bank economist Razia Khan.

"As such, the release of net international reserves for May will be telling. Will it or won’t it reveal a significant gain in reserves, confirming receipt of the Absa-related flows?" asks Khan.

Retail sales figures are due out on Wednesday.

"Growth in retail sales probably slowed further in March because the Easter holidays fell in March instead of in April," says Marisa Fassler, an economist with JPMorgan.

On Thursday, Statistics SA will release manufacturing production data for April.

Manufacturing output rose 1,2% year on year in March and 0,9% month on month.

Investec’s purchasing managers index, a leading indicator for manufacturing production, remained steady in April, above the critical 50 level.

"Production in April is therefore not expected to have grown at a more robust pace, and instead should be marginally weaker than in March," says Lalla.

Mining production figures are also due out on Thursday.

Fassler says that mining production probably moderated in April after a strong March performance.