There could be scope for a further 0,5 percent cut in home loan and
overdraft rates before the end of the year, says Nedcor Investment Bank
economist Sandra Gordon.
But the banks may prefer to wait until there is room for a full one percent
cut before moving.
Speaking at the Syfrets Private Bank/Saturday Argus Investor Club meeting
in Cape Town this week, she said interest rates could stay lower for
longer, thanks to good news on the export front.
Historically, Gordon says, economic recoveries in South Africa have been
stalled by trade balance problems. Higher domestic demand has led to a
surge in imports which the country cannot finance, pushing up interest
rates and aborting the recovery.
But this time stronger exports could delay the pressure on the trade
balance, allowing interest rates to stay lower and the recovery to last
longer.
"As the economic recovery strengthens so the scope for additional interest
rate cuts ends," she says. But because of the stronger global economy -
world growth is set to strengthen from 2,6 percent this year to more than
three percent next year - the next upward phase in interest rates is likely
to be delayed and to be more subdued than usual.
She expects the prime rate to drop to 14 percent by the middle of next year
before climbing again.
On the rand, Gordon says the outlook is for a "relatively muted"
depreciation, with the currency ending this year at about R6,20 to the US
dollar and weakening to about R6,65 by the end of next year.