Good signals fail to move Stals
A RISE in SA's gold and foreign exchange reserves to record levels in July completed a week in which the economy sent out mostly optimistic signals about a cut in interest rates over the next few weeks.
The only dampeners were a slower-than-expected fall in credit extension and a decline in the rand against a buoyant US dollar.
Reserve Bank figures released on Friday show that the reserves improved from R22.13-billion in June to R22.8-billion in July. But this was only after an increase in the use of foreign credit lines to R3.2-billion from R1.8-billion and the benefit of $250-million from the government's recent Yankee bond issue in the US.
The Bank has been supporting the rand in recent weeks as the currency was hit by fears about the impact of a plunge in gold prices to a 12-year low earlier this month and a strong dollar.
The rand broke below R4.63 to the US dollar for the first time in six months on Friday.
But Reserve Bank Governor Chris Stals told Reuter he was not alarmed by the rand's fall as it reflected dollar strength rather than the weakness of the US currency. The US dollar soared to its highest level this decade against the D-mark.
The Bank also disclosed that individuals have been in no great rush to invest in foreign markets since the green light was given on July 1 to take funds offfshore for the first time in 30 years. Only R144-million was invested in foreign currency last month, a fraction of the R3-billion to R5-billion that officials predicted could leave over the next few months.
Stals said this week that a fall in interest rates would have to wait until trends in the economy could be evaluated.
This week, however, most figures suggested that his tight monetary policy was having the desired effect:
Stals said during the week that he was encouraged by money supply, inflation and trade data but emphasised that he could not commit himself to the timing of an interest-rate cut. He was optimistic that the relaxation of monetary policy would commence this year.
Stals will undoubtedly have one eye on economic growth and employment figures, which are pointing downwards.
This week the Central Statistical Service reported that a further 42 000 jobs were lost in the first quarter this year, bringing the losses over the past 12 months to a worryingly high 70 000. Economists fear that about 170 000 workers will be laid off this year unless economic growth revives sharply.