Forex Investment and Currency Trading

The April 10th interest rate decision of the South African Reserve Bank was always going to be a tough call, and recent developments in South Africa have only added to the uncertainty. It is now quite clear that the economy is slowing, with the country’s power crisis and the recent reintroduction of load shedding for consumers unlikely to help much. Survey readings for both business and consumer confidence have decelerated sharply in Q1, albeit from reasonably healthy levels just prior to the power crisis. Certainly, as the
jokes doing the rounds in South Africa attest (‘Question - what did South Africa have before it had candles? Answer. Electricity’), many are unused to the non-availability of electricity, and the ‘shock-effect’ of the recent load shedding may therefore have had a disproportionate impact on confidence data.

But weak humour aside, the slump in retail sales is real. There is now little evidence of growth in retail sales. While the onset of the power crisis may have helped to constrain spending, the contraction in retail sales preceded the worst of the load shedding in January, suggesting that earlier interest rate tightening may have had a role to play. South Africa has been in a tightening cycle since June 2006. It is estimated that there is at least an 18-24 month lag before the full impact of an interest rate change feeds through into the real economy. So – according to this argument - as a result of earlier rate moves alone, policy should become gradually tighter even if there are no further policy rate hikes.