Bank of America Merrill Lynch is forecasting another 50 basis points rate cut for South Africa in November and believes the country’s first rate hike since 2008 is only likely to occur in the first quarter of 2014.
The bank also forecasts that inflation is likely to remain within the SARB’s 3 percent-6 percent target range over the coming year.
“In the very near term‚ we expect a little more inflation pressure in Q3 2012 than we had previously
but this is still likely to dissipate in Q4. In H1 2013‚ we also expect stronger inflation relative to our previous forecasts but expect this to ease nicely late into the year‚” the bank said in a report.
“All things considered‚ we expect headline CPI to back up to 5.4 percent by September on higher petrol prices.
Thereafter‚ despite food price inflation picking up from 5.4 percent in July to 9.7 percent in December‚ weaker goods (ex energy) inflation into year-end from a sharp slowdown in economic growth to below 2 percent annualized in both Q3 and Q4‚ will likely combine to take headline inflation back down to 5.2 percent by year-end. If is also worth noting that the rally in USDZAR over the past week to the 8.20 level may also lead to some petrol price relief from October‚ assuming the Rand holds these levels in coming days and weeks.
“From the perspective of the SARB‚ the combination of the weaker activity data we expect in coming months together with a probable moderation in inflation from October will likely provide the backdrop for a 50bp cut in November‚ in our view‚” the bank added.
It believes the late 2012 trend toward lower inflation will reverse into 2013‚ adding that it has revised its inflation forecasts higher for H1 2013.
“In the main this represents ongoing pass-through into food price inflation which will likely accelerate to 14 percent yoy in H1 2013‚ on average‚ as categories such as meat and diary respond to higher maize prices with a lag of about 9 months in our inflation model. While this upward effect is tempered by a further moderation in goods (ex energy) inflation‚ headline nevertheless moves higher to 5.6 percent by mid-year‚ with a chance of a temporary peak around the 6 percent mark moving into Q3. Evidence of higher inflation will likely put a break on any further easing by the SARB‚ in our view‚ and is the principal reason we forecast only one further rate cut to come (to 4.5 percent) in November this year‚” the bank stated.
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