No rate cut foreseen

Chances of an interest rate cut before Christmas were always slim and the rand's recent slide now make them look even more emaciated.

The Reserve Bank's monetary policy committee is scheduled to start its bi-monthly meeting tomorrow and is to announce its interest rate decision on Thursday.

The repo rate at 5% and the prime lending rate at 8.5% are already at their lowest in a generation.

Highly indebted South Africans are hoping that the rate will be cut even further as the economic outlook deteriorates.

But Standard Bank's economists are not forecasting a rate cut on Thursday.

"We expect the Bank to stand still [on rates]," the economists said in their outlook for this week.

The Reserve Bank targets consumer price inflation at between 3% and 6% but the latest numbers from Stats SA have shown inflation to be approaching the upper end of the target band. It reached 5.5% in September from 5% in August.

The Consumer Price Index for October is due to be announced on Wednesday and will give a clearer picture of the effect of the latest fuel price increases.

A weaker rand feeds inflation by making fuel and other imports denominated in foreign currencies more expensive.

Last month the rand weakened significantly against major currencies as illegal strikes in the mining sector continued and ratings agencies downgraded South Africa's sovereign debt.

The rand last week fell to nearly nine to the dollar, its weakest in three years.

Nedbank's Economics Unit said on Friday that the currency might not be out of the woods yet.

"The rand remains very vulnerable to negative surprises domestically as well as bad news internationally," said the unit.

"The chances of a significant depreciation in the months ahead have risen. Careful and concerted government action is needed to reassure investors and ratings agencies," according to the unit.

On Thursday the currency was hit by the news that the Eurozone had slipped back into recession.

Weaker growth in Europe usually hits manufacturing hard; it is the second-biggest sector in the economy and a large employer.

Even though Standard Bank's economists are not optimistic about a rate cut this week they expect the interest rate to be lowered before the end of the first term next year but, they say, "hopes for further monetary easing within six months have diminished considerably".