THE first glimmer of hope that SA might begin to reverse its mammoth current account deficit emerged yesterday when the South African Revenue Service (SARS) reported a significant drop in the trade deficit in September.

The current account gap was larger than 6% of gross domestic product in the first two quarters — a major inflation concern because of its potential to weaken the rand and push up the cost of imported goods, including oil. Reserve Bank governor Tito Mboweni has warned repeatedly of the risks it poses to inflation.

But in a rare piece of good news on the trade front, SARS said imports outweighed exports by a mere R175m in September — the best figure in nine months and a far cry from August’s R5,3bn difference. Economists had predicted a R4bn shortfall.

The rand soared to its best level in more than a month on the news, rising as high as R7,38 to the dollar from R7,55 just before the data release. Earlier in the day, it had traded as low as R7,60 in anticipation of another piece of bad news.

Economists warned the improvement would not be enough to stave off another hike in interest rates next month, saying the monthly trade data were notoriously volatile and it would take a sustained improvement to eradicate the current account gap and reduce the risk to the rand.

The SARS data show that the cumulative trade deficit so far this year is R41,7bn, compared with R16bn at the same stage last year.

But the causes of the smaller deficit in September — lower oil prices together with the boost given to exports by a weaker rand — will give some comfort to Mboweni ahead of the December meeting of the bank’s rate-setting monetary policy committee.

Additional respite is expected to come in the form of a slowdown in consumer spending following the three rate hikes since June.

“It’s a very good number,” said JPMorgan Chase economist Marisa Fassler. “Lower oil prices are producing some relief. The rand is doing some work in stimulating exports. Going forward we’ll see a lower current account deficit.”

The rand exchange rate averaged R7,42 to the dollar in September, compared with R6,95 in August, which contributed to the 4,6% (R1,7bn) jump in the value of exports to R37,6bn.

At the same time, the value of oil imports dropped 17% in September, thanks in part to lower oil prices, contributing to an 8,4% (R3,5bn) decline in the overall value of imports, to R37,8bn.

Efficient Group economist Dawie Roodt said that if September’s smaller deficit was the beginning of a trend, it could bring an early end to the rate-hike cycle.

“If we get another two or three months like this, then I’m pretty sure we won’t see an interest rate increase in February,” Roodt said.

“But I’m pretty certain that, no matter what, we will see one in December,” he said.

Government bonds, already buoyed this month by news of a planned budget surplus in 2007-08, rallied on the news as investors bet that interest rates may not have to rise as much as was earlier feared should pressure on the current account ease further. Yields on the R153 fell 12 basis points from late Monday levels to 8,27%, while yields on the benchmark R157 dropped 8,5 basis points to 8,095%. Bond prices rise as yields fall.

Standard Bank economist Shireen Darmalingam said the Bank’s import-cover ratio increased to 4,6 months in September, from 4,2 months in August. She said the bank “continues to expect mild to moderate accumulation of reserves for the remainder of the year”. With Bloomberg and Reuters.