INTEREST RATE CUT IS LIKELY,SAY ANALYSTS
By Renée Bonorchis

Johannesburg - What with the country's sovereign rating upgrade from Moody's and the markets showing their first trends for the year, economists have said there is room for a modest interest rate cut in February.

Colen Garrow, an economist at Brait, said yesterday he was touting a 50 basis point cut next month.

"Sovereign upgrades often lead to a rerating of assets, property, equities, bonds [long-term rates] and consumer rates [short-term rates]. I'm hopeful, especially after the poor manufacturing data," Garrow said.

In a report he added that with the rand maintaining respectable levels at about R6 against the dollar, speculation was intensifying that the Reserve Bank would be tempted to ease rates when the monetary policy committee (MPC) met on February 9 and 10.

Garrow said: "However, it is not the rand's value against the dollar which is key in any interest rate decision the central bank reaches, but rather the local unit's performance against the 14 currency trade-weighted basket which could tip the scale in favour of monetary easing next month.

"It is somewhat of a disappointment, therefore, that the rand has retreated, surrendering some 4.7 percent of its trade-weighted value in the first few trading days of 2005."

But the easing of the currency was not unexpected.

In a report put out early in December, Nazmeera Moola, an emerging markets economist at Merrill Lynch, not only took her rand forecasts down a notch, expecting the currency to weaken only marginally by the end of this year, but she said the currency, after a bout of extreme strength in the last weeks of last year, would drop slightly within six weeks.

Her timing was spot on.

In her latest report she has again mooted the possibility of a small interest rate cut based on a "stronger-for-longer" rand view which should have a positive impact on inflation, domestic demand and growth.

With attention focused on CPIX (consumer inflation excluding mortgage costs) growing annually at 4.6 percent in November, Garrow expected the MPC would be taking no chances with the inflation target it is mandated to protect, despite the healthy 44c a litre drop in retail petrol prices last week.

Merrill Lynch said it had built a 50 basis point cut into its forecast, "and there could possibly be a further cut at some stage this year".

After the MPC's decision in December not to cut rates, Neva Makgetla, an economist at trade union federation Cosatu, felt the MPC should have been bolder and cut rates in order to spur growth and create jobs, but Annabel Bishop, South Africa economist at Investec, thought the MPC had made the right decision.