There is some good news for rating guys


There is some good news in the economic indicators in the medium term budget policy statement. In the statement it was reported that the consumer price index inflation (CPI) “returned to within the three to six percent target band (part of the mandate of the South African Reserve Bank) in the second quarter of 2017”.

CPI inflation declined from 6.6 percent in January to 4.8 percent in August.

Core inflation, which excludes price-volatile items such as food, fuel and electricity, fell from 5.9 percent in December 2016 to 4.6 percent in August 2017, reflecting weak domestic demand.

Food price inflation declined from 12 percent in December 2016 to 5.7 percent in August 2017 as drought conditions – outside of the Western Cape – declined.

The statement reported that the SA Reserve Bank had cut the repurchase (repo) rate from seven percent to 6.75 percent in July 2017.

Inflation expectations remain near the upper end of the target band. However, the inflation outlook has improved since the 2017 February Budget. Headline inflation is now expected to average 5.4 percent in2017, down from 6.4 percent. The revisions to the inflation outlook reflect lower oil and food prices and a slightly stronger exchange rate assumption.

However, there were risks to the outlook – currency depreciation, higher oil prices, rising electricity tariffs – “and other sovereign rating downgrades”.

Gigaba acknowledged that policy and political uncertainty remain central risks to the domestic economic outlook. “Elevated policy and political uncertainty, coupled with weak confidence, discourage investment and consumption.”

Further risks include a downgrade of the local currency rating and higher administrative prices, which would lead to higher inflation, he acknowledged.

Gigaba noted that treasury would meet the agencies on Wednesday and again next week. “We would not want to speculate on how they are going to reacto to the presentation.”

It was “in our hands” to change the course that South Africa was on currently. “It requires restructural reforms to deal with niggling challenges.”

He said the bringing in of the private sector into ownership was a key issue in this debate. Government was seeking to raise nearly R4 billion through selling off assets. The figure given in the MTBPS briefing was R3.9 billion.

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