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South Africa: Calm Before Statistics Storm
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Business Day (Johannesburg)
ANALYSIS
19 May 2008
Posted to the web 19 May 2008
Mariam Isa
Johannesburg
A DEARTH of domestic data will give South African markets a chance to mull over the interest rate outlook this week, with a public appearance by Reserve Bank Governor Tito Mboweni likely to grab the limelight once again.
Mboweni is due to address an annual conference hosted by the Bureau for Economic Research (BER) with a speech titled, Monetary policy and cost pressures in the SA economy .
Last week, the governor sent a clear signal that interest rates will rise again at the Bank's next policy meeting on June 11-12, adding to a 4,5-percentage-point cumulative rise since mid-2006. Inflation pressures had spread beyond food and fuel, and it was very clear "monetary policy had to tighten a bit," he told a public forum.
Those comments sealed money market expectations that the Bank will lift its repo rate by half a percentage point next month, taking it to 12,0%.
They also fanned speculation of another rate hike at the Bank's next scheduled policy meeting, which is in August.
Many economists think those expectations are misplaced. "We still feel that financial markets have been hasty in pricing in an above-50% chance of yet another hike in August," said Citigroup economist Jean-Francois Mercier.
Mercier says the Bank is showing concern about second-round inflation effects, while being aware the economy is responding to previous rate hikes.
"Exactly how much medicine is required to cure the inflation ills is unclear, and will depend on a battery of indicators yet to be released," he said.
The extent to which the economy slowed during the first quarter of this year will be clear when Statistics SA publishes gross domestic product (GDP) data for the quarter next week.
Consumer and producer price figures, along with credit and trade data, are also due, all covering trends last month.
This week, markets have only building plans and civil debt cases -- both for March -- to chew on. Building plans data are set to show that approvals of new residential construction continued to fall, extending a trend seen for three quarters.
Civil debt summonses have been falling steadily despite the upward trend in debt costs, and this is also likely to have remained the case in March.
But analysts believe these data are a "lagging" indicator that does not reflect household debt distress, which is rising.
"Renewed interest rate tightening and high household indebtedness are raising the scope for increasing bad debts this year, highlighting potential credit risk," Standard Bank says.
Credit-constrained households also faced deflating growth in their financial safety net. Declining house prices meant there was limited equity available for distress borrowing or to fund consumption, it said.
Household debt has climbed to a record 77,6% of disposable income, boosting the portion of income spent on debt-service costs to 11% -- a nine-year peak.
This is worrying as in the last quarter of last year, household debt grew by 19,9%, outpacing nominal income growth of 12,5%, Standard Bank said.
While the ratio of nonperforming mortgage loans as a portion of the total is hovering near historical lows, the pace of acceleration is at its highest since records began in 1995.
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In a report last month, the Bank said non-performing loans surged 56% in the final quarter of last year.
I do not beleive the statistics will be,acurate,up to date, or for that matter of much use to the middle class + bracket.
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