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Short Note                                                                            24 November 2016

SARB rates unchanged BUT    

by Cees Bruggemans          words 600

What surprised least in the unanimous SARB rate decision today: that it kept rates unchanged, and its preoccupation with uncertainties surrounding Trump policies, their global & SA impact, with Brexit a distant second concern.

SARB’s domestic concerns warranted a short sentence, possibly understating what it still really fears but doesn't say. One can imagine, though, and does. Certain things just don't bear contemplation, even if still in back of the head.


So inflation risks remain moderately to the upside, the Rand the main conduit. The SARB kindly mentions SA being close to end of its interest rate cycle, but then destroys that happy feeling completely by warning that if upside risks to inflation transpire all bets would be off. So, congratulations but forget it if… a typical spoilsport kind of central bank, but that is why they earn their pensions.

A most disconcerting number was the outflow of capital, non-residents these past eight weeks being net sellers of R63bn of SA bonds & equities. If annualised, that would be R400bn, nearly three times our current account deficit over the balance of payments. That makes the Rand a little fragile at times of shocks. So not too many of those, please.

The biggest surprise, for me personally, was the absence of any SARB reference in its global risk analysis to growing European Continental uncertainties, their possible evolvement & Rand impact on SA in 2017-2020. Even Chinese risks made a cameo appearance in what otherwise was Trump, Trump & more Trump (and of course his impact on the Fed and its possible reaction function), with the Brexit reference (though difficult to fully assess) also making its near obligatory appearance.

But not even a worried aside about European risks. Did the relevant analyst go on long leave, or something? Or is the Continent really as innocuously innocent as it is made appear to be by this total non-appearance in the SARB commentary? Italy (December), Holland (March), France (May), Germany (October)?

Perhaps too much Trump overemphasis and too little European, with Brexit still the mandatory reference, but none able to tell us what real risks we are running here, except it could be bigger than what Theresa imagines?

After all that, SARB sees slightly positive SA growth in 3Q16, though remaining tantalisingly mum, all honour going to Stats SA on 6 December AFTER all rating agencies have had their say on us (but presumably privately briefed about our growth …). So no junk degrading just as yet? It remains a nailbiter for those so inclined, if over 85% priced in.

SARB clearly sees our goods sector as the drag of the piece (mentioning retail, wholesale & motor trade only later, but also clearly in that category). Saviours in the 3Q are mining & remainder of services sectors, with strong growing tourism warranting special mention in the dispatches.

Even so, SARB describes SA growth prospect as unchangingly constrained (poor) due to weak business & consumer confidence. Unstated, our animal spirits are on hold and we clearly not doing enough to change that outlook. For that we have to thank our government and its poor policy paradigm. It remains “paradigm lost” for now, though not publicly commented on, even if  we may look forward to the day, presumably, of a more sensible paradigm being regained and this then being reflected as much in the country credit rating as monetary policy.

And this without recourse to a Brics rating agency, too, presumably, even if this remains the preferred choice of our esteemed President.


Cees Bruggemans

Bruggemans & Associates, Consulting Economists



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