A 50 basis point cut is expected for South Africa’s repo rate at the Monetary Policy Committee (MPC) meeting next week Thursday, according to a survey of 11 leading economists by I-Net Bridge.

Rates were cut by 50 basis points to 6.0 percent in September.

Reserve bank Governor, Gill Marcus, gave little away about the prospect of further rate cuts beyond the 50 basis points at the September meeting, but the market believes her statement was dovish enough for one more cut to transpire.

Rates are now navigating waters last seen in the 1980’s, after the inflation outlook improved so much that the Bank saw little option but to cut to attempt to boost growth.

Standard Bank said that economic developments since the last rate cut have, almost without exception, turned in favour of further monetary easing.

“Both releases of CPI – for August and September dipped below market expectations, the manufacturing and retail trade sectors lost steam, SA’s unemployment rate edged fractionally higher and the MTBPS didn’t provide an obvious “solution” to excessive rand strength,” they said.

“We don’t believe that a rate cut would correct the rand’s overvalued position, at least not in the short term — but it might support economic growth, and the inflation outlook definitely allows for a rate cut,” added Standard Bank.

Absa Capital said that more factors were pointing to an interest rate cut at the November meeting of the Reserve Bank’s MPC. These include among others, the third quarter inflation coming in lower than the bank had anticipated, a continuing decline of inflation expectations, weak economic recovery and rand strength.

“With inflation reaching 3.4 percent in the third quarter of 2010, this print lowers the starting point for the inflation trajectory, adding that a further downside surprise was likely in the fourth quarter. This despite a four cents a litre and 20 cents a litre increase in the price of petrol in October and November,” said the economists.

“We think the risks for further rate cuts in the first few months of 2011 are balances as the Reserve Bank’s decisions will be considerably data-dependent,” the economists concluded.

Bank Governor Gill Marcus at the last meeting said the scope for further downward movement is seen to be limited, but this will be “assessed on an ongoing basis”. But the tone was certainly dovish on the whole, with the downside risks to growth, the poor consumption and debt outlook, a stronger rand for longer and low global demand all featuring prominently.

The bank has already reduced the repo rate by 600 basis points since December 2008.

The decision will be made shortly after 3pm on Thursday 18 November.

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