By Cees Bruggemans, Chief Economist FNB.

SARB Governor Marcus today announced no change to interest rates, following a two day meeting of the Monetary Policy Committee.

Though there was a tremendous change in presentation style, there was none in policy substance.

The Governor presented her MPC team upfront and it was clear that wide-ranging discussions had taken place to come to the policy decision that was unanimously taken.

Thus there is a clear sense of institutional continuity that no doubt will be widely welcomed by financial markets.

As to the actual decision of leaving interest rates unchanged, it very much focused on the level and behaviour of inflation over the coming year, and the risks to this outlook.

The Governor described CPI inflation as likely hovering around 6% through the coming two years, probably just with the 3%-6% target zone, going by the MPC statement.

The Governor repeatedly emphasized

By Cees Bruggemans, Chief Economist FNB.

Every SARB Governor these past forty years, from De Jongh to De Kock to Stals to Mboweni, has implied major change in style and policy substance.

We should expect something similar from Governor Marcus who likewise will undoubtedly stamp her own imprint on the office.

Where is she likely to lead us? Though history cannot offer any exact parallels, for circumstances are always unique, one is allowed to wonder.

The changeover from Governors De Kock to Stals now already twenty years ago still comes vividly to mind, and may be useful to recall.

Governor De Kock ultimately proved too determined to use interest rates pro-actively, trying to overly influence demand in an economy that was seriously malfunctioning on the supply-side.

Policy was increasingly desperate to still wring some more performance from a system that could no longer deliver, using demand manipulation to do

By Cees Bruggemans, Chief Economist FNB.

After a great fall (2008), success in arresting the fall and stabilizing the economy on a low level of capacity utilization (2009), growth prospects tend to be very promising as slack resources as well as new inputs will be available to be put to work. Demand needs to grow in order to put such available resources to work.

Potentially this will be so for years to come (2010-2020) as any new supply imbalances eventually ending the next growth expansion (balance of payments, inflation) could remain manageable for the time being.

This, in a nutshell, is the case for growth.

It then gets better, but it also gets worse. For the global environment looks even better than this simple base case, offering piggyback opportunities for small open economies like ourselves.

This very favourable global environment, however, may also prove to offer a too rich

By Cees Bruggemans, Chief Economist FNB.

The SARB leading indicator peaked at 127.2 in March 2007, thereafter declining for two years, initially gradually during 2007 but acquiring freefall proportions in 2008.

This indicator hit a cyclical low of 105.3 in March 2009, thereafter rising very rapidly to 112.5 by August 2009.

Given the events of 2008 and early 2009, there presumably exists no surprise regarding the indicator’s freefall in 2008. But what has made it rise so phoenix-like rapidly since March this year?

As per the June 2007 issue of the SARB Quarterly Bulletin, this leading index today is a composite of twelve individual time series which together offer superior forward-looking ability regarding the South African business cycle, leading turning points by some six to nine months.

The twelve time series can be grouped in four distinct sub-categories, each making a peculiar contribution to the behaviour of the composite

The October edition of the Reuters South African Survey of Economists has just been published. (The Reuters Econometer is a measure of economic sentiment drawn from a monthly poll of forecasts by leading economists in South Africa and abroad and presented in the form an index). The weightings used in the index are: GDP growth - 25%; CPIX inflation - 20%; Producer Price Inflation - 5%; Prime Interest Rate - 20%; 10-year bond yield - 5%; Rand-Dollar Depreciation - 25%.

The Reuters Econometer fell for a third consecutive month in October, falling to 235,60, its lowest level since September last year. Confidence in SA’s economy fell as demand and manufacturing capacity is seen taking longer to improve, as a result of the looming increase in power tariffs, which is expected to further

By André Coetzee, Kagiso Securities.

The seasonally adjusted Kagiso PMI rose to 47.6 index points in October from a revised 45.9 during September. Last month’s 1.7 index point gain is on top of a 6.4 point jump in September and confirms that SA manufacturing output is moving back towards expansionary territory.

While  it  is  disappointing  that  the  headline  PMI  was  unable  to  rise  above  the  key  50  level  in  October,  the  sub-indices  paint  a  consistent picture  of  a sector  that  is  emerging  from  a  deep  contraction  with  both  the  business activity  and  new sales orders indices  building  on September’s robust gains to reach the highest levels since April 2008.

Furthermore, the near-term demand indicators hint towards sustained improvement going forward with the backlog of sales orders index also  reaching  the  best  reading  since  2008Q2  and  purchasing commitments rising  to  the neutral  50 level  for the first  time

By Cees Bruggemans, Chief Economist FNB

It can be very unsettling when hitting an air sack, and only natural to assume things won’t quickly return to normal as trouble has a way of coming in multiples.

The South African building industry certainly has reason to be suspicious of any early suggestions of recovery, given the exuberant times that lasted for several years after which the plunging descent into deep recession last year was one of the most abrupt in decades.

Yet the deeper it falls, the more likely a bottom is reached, provided shock absorbers are fully extended.

The peaking of interest rates late last year, since then shedding 500 points, certainly provided important support for the building sector.

This evidence is also starting to shine through in opinion surveys. The FNB/BER building confidence index for 3Q2009 released last week offered a series of data points all suggesting a

By Cees Bruggemans, Chief Economist FNB

The forces arraigned against the Rand are rather formidable and no collapsed corporate deals seem to matter too much. The Rand is rising and will rise.

Pushing the Rand higher are the major central banks at the global centre (New York, Frankfurt, Tokyo, Zurich, London), keeping interest rates near zero and encouraging outward liquidity leakage towards faster growing and still outperforming yield destinations in the global periphery.

Pulling the Rand higher are a smattering of central banks located in the global periphery as they start increasing their rates, led by the Bank of Israel two weeks ago, but last week followed by the Reserve Bank of Australia, with others expected to follow serially in coming months.

With their growth reviving, small output gaps, house prices and employment rising and industrial activity recovering, these central banks are uncomfortable with their too low interest rates imposed during

By Cees Bruggemans, Chief Economist FNB

These are dynamic times in which few things remain the same for long. What surprises could await us these next six to twelve months?

Externally, there has been plenty of warning of a long period of near zero interest rates at the global centre (America, Europe, Japan) while growth and yield remains most attractive in the periphery (Asia, Latin America, other Middle Eastern and African commodity producers).

These past six months this condition has pushed global equity and bond prices higher, while favouring a steady liquidity leakage from the global centre to the periphery, giving many emerging asset markets a double leg-up while also firming their currencies.

The main likelihood for the next twelve months (or longer, bearing in mind the evolving nature of the shaping global expansion) is that these processes will continue. By implication expect more asset price gains, especially in

The September edition of the Reuters South African Survey of Economists has just been published. (The Reuters Econometer is a measure of economic sentiment drawn from a monthly poll of forecasts by leading economists in South Africa and abroad and presented in the form an index). The weightings used in the index are: GDP growth - 25%; CPIX inflation - 20%; Producer Price Inflation - 5%; Prime Interest Rate - 20%; 10-year bond yield - 5%; Rand-Dollar Depreciation - 25%.

The Reuters Econometer feel for second consecutive month in September, falling to 241,51 from 247,90. Confidence fell as a stronger rand was expected to suppress exports and interest rates are now seen rising earlier than first expected. The economy is expected to grow next year, however a stronger rand is seen limiting the extent