If any of you have been reading up on recent South African economic developments, you know that there was a growing (albeit small) chance of a possible interest rate cut later this year.
With inflation topping slightly above 6% and analysts expecting it to drop back into the 3-6% range by the end of 2012, followed by even lower levels in 2013 of 4-5%, another rate cut would be in the books.
If inflation ended up above that 6% mark, interest rates would need to be adjusted upwards (read: prime rate going from 9% to somewhere around 11%), assuming of course we have the SA economy steaming forward. However, seeing only a slight increase in economic growth (3%), interest rates were left unchanged and furthermore, overall expectations are that prime will remain at 9% through all of 2013.
Without going into too much economic detail, there are a few other tools policymakers can stimulate the economy. The mining, manufacturing and building activities need to pick up and this might be achieved by a weaker foreign exchange rate (ie Euro vs Rand of 11 and USD vsRandof 9).
Having said that, if world economic conditions remain or become worse (especially now there’s talk of a possible exit of Greeceout of the Euro), any SA interest rate adjustments that will need to be made, will be to the downside (read: prime going to 8.5% or even 8%).