JSE and interest rates likely to remain flat

Asian markets were generally flat ahead of the JSE’s opening on Thursday morning, indicating a possibly lacklustre day for the local bourse, which managed a small gain of 0.22% on Wednesday.

Naspers’s 31%-owned Tencent was down 0.37% to HK$376.60 in Hong Kong while BHP was up 0.27% to A$33.66 in Sydney.

The rand was trading at R13.28 to the dollar on Thursday morning ahead of Reserve Bank governor Lesetja Kganyago’s interest rate announcement at 3pm.

The rand was trading at R15.47 to the euro and R17.36 to the pound at 6.45am.

The Reserve Bank’s seven-member monetary policy committee (MPC) is expected to vote to hold the repo rate at 6.5%. By convention, South African commercial banks add 350 basis points to the Reserve Bank’s repo rate to set the prime rate on which they base their home, car and other loans. If the Reserve Bank holds the repo rate at 6.5%, commercial banks will keep their prime rate unchanged at 10%.

“While we expect inflation to increase, we do not foresee a rise to above the Reserve Bank’s 6% upper target range for inflation over the next three years. This relatively benign inflation outlook and the still-weak economy will probably convince the MPC to delay hiking rates for as long as possible. We forecast that rates will remain unchanged for the rest of this year, before rising moderately late in 2019,” Nedbank’s economic team said in a note e-mailed on Wednesday.

Investec Bank economist Lara Hodes said: “Markets continue to expect no change in SA’s repo rate this week, with the forward rate agreement curve still relatively flat in the immediate term. We estimate that the long-term structural inflation rate in SA is around 5.5% and continue to forecast a 25 basis point hike in the repo rate in January 2019, with another in March 2019 and a further 25 basis point lift in 2020 in order to return SA interest rates to neutral levels.”

The lull in the JSE’s results diary continues on Thursday, but it is a busy day on the economics front.

Statistics SA is scheduled to release four monthly reports for May on Thursday: civil cases for debt and wholesale trade sales at 10am, motor trade sales at 11.30am, and building statistics at 1pm.