Wednesday, 28 September 2011 - 20:00
Exchange, Inflation, and Interest Rates
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Last week saw the release of the latest inflation numbers and the Monetary Policy Committee’s (MPC) pronouncement on interest rates. On Wednesday, inflation came out at 5.3% year on year (no change from the 12 months to the end of July). Thursday’s MPC pronouncement was for no change in interest rates, with the repo rate remaining at 5.5% and the prime lending rate at 9%.
At the same time since the beginning of the month (less than 3 weeks ago) we have seen the rand lose considerable value to developed market currencies. At the end of August, US$1 would have cost just under R7, it now costs over R8 (over 15% depreciation).
These three indicators are useful in most of our lives. Interest rates dictate our monthly repayments on home, car and other loans if we have any debt, or the rate we receive on any fixed income savings. While the inflation rate can vary widely from individual to individual, the national inflation rate gives us a sense of how fast prices of goods and services are rising. It sometimes appears that the exchange rate doesn’t have a direct impact on us unless we’re involved in the import and export business or are planning an overseas trip, but the chart below shows just interlinked all these indicators actually are.
In a country with inflation targeting (such is the case in South Africa), changing the repo rate is the main method to guide inflation. Raising the rate increases the interest/debt burden for companies and individuals, and generally results in debt being paid down, the economy slowing, and inflation falling (and vice versa with falling rates). As a lot of inflation is imported (through global pricing for commodities, goods, and services) the level of the rand has a direct impact on the inflation rate and by extension interest rates.
With the head of the MPC, Gill Marcus, seemingly placing more of a priority on economic growth than her predecessor Tito Mboweni did, it will be interesting to see if and when she changes interest rates should the weaker rand translate into higher inflation. The argument until now for leaving rates at 30 year lows is that the inflation in the economy is cost push inflation as opposed to demand pull inflation (i.e. inflation isn’t as a result of strong economic growth, but rather external factors that can’t be controlled by the repo rate).
For now there hasn’t been much debate about interest rates as the inflation rate has stayed within the target range of 3% - 6%, but there will no doubt be some interesting debate if/when inflation moves out of this range. If the rand stays above R8/$ (or weaker) for an extended period this debate will most likely happen sooner than expected.
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Wed, 28 Sep 2011
The directors of Pinnacle Point have applied to the JSE for suspension of its securities with immediate effect following the notice of motion received by the company on Monday, 26 September. . .
Central Rand Gold Ltd is disappointed by the South African Department of Mineral Resources' ("DMR`s") decision to cancel the company's mining right, notification of which was received by the company on. . .
Shareholders were advised that following the announcements on SENS on 4 August 2011 and 30 August 2011, the company posted a circular to shareholders on 28 September 2011 , relating to. . .
World Markets (Spot Prices)
|JSE Top 40||17:00||27053.23||-440.40||-1.60%|
|JSE Indust 25||17:00||27273.02||-243.63||-0.89%|
|Rand / Dollar||19:59||7.8816||0.0164||0.21%|
|Rand / Pound||19:55||12.2376||-0.0254||-0.21%|
|Rand / Euro||19:55||10.6788||-0.0106||-0.10%|
|Rand / NZD||19:58||6.1377||-0.0691||-1.11%|
|Rand / AUD||19:55||7.7372||-0.0573||-0.74%|
|Yen / Dollar||19:58||76.4340||-0.2970||-0.39%|
|Euro / Dollar||19:55||0.7370||0.0013||0.18%|
|Dollar / Euro||19:59||1.3563||-0.0022||-0.16%|
|Pound / Dollar||19:55||0.6416||0.0021||0.33%|
Click here for the Sharenet Spot Price page
The JSE Today
|Index Name||RP||Move||% Move|
|Financial & Ind. 30||30,175.41||-201.50||-0.66%|
|Oil & Gas ||25,403.26||-167.04||-0.65%|
|Oil & Gas Producers ||13,658.86||-89.82||-0.65%|
|Basic Materials ||27,075.57||-829.81||-2.97%|
|Forestry & Paper ||12,366.67||-171.54||-1.37%|
|Industrial Metals ||26,673.75||-774.12||-2.82%|
|General Industrials ||74,490.30||-576.21||-0.77%|
|Consumer Goods ||27,427.74||-339.48||-1.22%|
|Automobiles & Parts ||3,598.22||-24.91||-0.69%|
|Health Care ||33,932.21||-30.47||-0.09%|
|Index Name||RP||Move||% Move|
|Food Producers ||48,548.24||186.80||0.39%|
|Personal Goods ||402.70||-7.09||-1.73%|
|Consumer Services ||53,452.86||20.10||0.04%|
|General Retailers ||42,816.54||-210.41||-0.49%|
|Travel & Leisure ||3,464.87||-1.53||-0.04%|
|Support Services ||2,177.90||.66||0.03%|
|Non-life Insurance ||33,924.48||371.01||1.11%|
|Life Insurance ||15,547.86||-47.28||-0.30%|
|General Financial ||2,072.46||-2.95||-0.14%|
|SHARIAH TOP40 ||2,907.47||-69||-2.32%|
|FTSE/JSE SHARIAH ALL||2,976.45||-64||-2.11%|
|FTSE JSE Fledgling ||4,473.45||-9||-0.20%|
|FTSE/JSE Alt X ||1,114.57||-1||-0.11%|
|SA LISTED PROPERTY ||376.88||0.71%|
|CAPPED PROPERTY ||310.04||0.67%|
|FTSE/JSE RAFI 40||6,282.83||-81||-1.27%|
|Capped Top 40||14,259.78||-213||-1.47%|
|Capped All Share||15,342.93||-202||-1.30%|
Click here for the Sharenet Index Summary page
Latest Consensus Changes**
|NED||NEDBANK GROUP LTD||HOLD||23 Sep|
|SBK||STANDARD BANK GROUP LIMIT...||SELL||23 Sep|
|AIP||ADCOCK INGRAM HLGS LD||HOLD||23 Sep|
|LHC||LIFE HEALTHCARE GRP HLDG ...||BUY||23 Sep|
|EQS||EQSTRA HOLDINGS LTD||HOLD||23 Sep||
|Expected||Company Name||Fin. Date|
|29 Sep 2011||FIRESTONE||June 2011 (Final)|
|29 Sep 2011||FIRESTONE OPT||June 2011 (Final)|
|29 Sep 2011||FORBES||August 2011 (Interim)|
|29 Sep 2011||HARDWARE||June 2011 (Final)|
|29 Sep 2011||LONFIN||June 2011 (Final)|
|BSI STEEL||11-09-27||11-10-14||11-10-24||R 0.0200||
|GROUP 5||11-08-15||11-09-23||11-10-03||R 0.2000|
|SKW||Skinwell Holdings Ltd||28/09/2011||Confirmed|
|ART||Argent Industrial Ltd||29/09/2011||Confirmed|
|CSP||Chemical Specialities Ltd||29/09/2011||Confirmed|
|PSV||PSV Holdings Ltd||29/09/2011||Confirmed||
Stock Exchange News Service
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