Reshuffle makes interest rate cut less likely
Retail trade sales surprise on the upside, increasing 5.5% year on year in August, indicating that consumer spending has been strong
The interest rate cut in July has boosted the retail sector, but with the surprise Cabinet reshuffle on Tuesday the scope for a further rate cut in November may be limited.
Retail trade sales surprised on the upside, increasing 5.5% year on year in August, indicating that consumer spending has been strong.
A moderating inflation profile — particularly for food — and the recent 25 basis point interest rate cut were a modest tailwind for stretched consumers, First National Bank (FNB) economist Mamello Matikinca said.
The annual consumer price index showed an increase of 0.3percentage point to 5.1% in September.
While the figure remains in the inflation target band of 3% to 6%, economists are sceptical about another interest rate cut in November, which would ease strain on consumers.
The Cabinet reshuffle on Tuesday may spell another shock for business and consumer confidence, diminishing the prospects of rate cuts.
FNB economic analyst Jason Muscat expects the Reserve Bank to keep rates unchanged at its monetary policy committee meeting in November.
“It is likely that the Bank will wait to let much of the event risk — [such as] the medium-term budget policy statement, rating agency assessments, the Eskom tariff application and the ANC’s elective conference in December — play out before moving on rates, rather than lowering in November only to have to reverse the cuts should event outcomes stoke fears of higher inflation,” Muscat said.
“While we don’t expect the current strong pace of retail sales to sustain over the medium term, it seems to us that a lower domestic inflation environment is helping to spur a more resilient monthly sales performance,” BNP Paribas economist Jeff Schultz said.
“It is clear from recent comments that the committee remains concerned about rand weakness, the October 25 medium-term budget policy statement and the outcome of the ANC conference — all factors which remain tricky to predict,” Schultz said.