Interest Rate Cut on the Cards

Official figures released by stats South Africa yesterday reveal that July 2010 liquidations fell by 34.3%, taking the year-to-date total to a level 1.4% below that of last year – albeit off a high 2009 base. Personal insolvencies fell by a sharp 37.1% in June, with the first half of the year experiencing a 27.8% decline compared to the first half of 2009. This picture is one we would expect to emerge and indeed hope to gather momentum in the months ahead.

Credit Guarantee’s threatening claims are a third lower than in the first eight months of 2010 and this leads us to expect that the improvement in corporate closures should gather momentum. Businesses are still faced with many challenges though, be it on the demand or supply side. Domestic demand has recovered from its lows, as evidenced by the 3.1% real gain in retail sales in the first half of 2010, although many remain concerned by the high levels of household debt and pressures on personal income statements emanating from large increases in administered prices.

Such price pressures are also evident in what firms have to contend with, namely factory gate prices rising by 9.4% and 7.7% in the previous two months respectively. PMI indices reflect neither optimism nor pessimism and confidence indicators that leave a lot to be desired indicate that sentiment is in need of a boost.

While exporters bemoan the strong exchange rate, it has thankfully helped to keep a lid on inflationary pressures with July’s 3.7% CPI outcome the lowest since early 2006. However, the turning over in the leading indicator, softer second quarter 2010 GDP data and little likelihood of any improvement in the short-term employment outlook, lead us to expect that the South African Reserve Bank will cut rates by 50 basis points next week.