Marcus Sees No Need for 'Guidance' on S. Africa Rates (sfgate.com)

By Philip Sanders and Digby Lidstone

July 7 (Bloomberg) -- South African Reserve Bank Governor Gill Marcus said there is no need to give "policy guidance" on interest rates as she did before the previous Monetary Policy Committee meeting, leaving analysts guessing whether she will cut rates this month.

While the inflation outlook is "favorable" and the economic recovery is "fragile," rising wage demands are adding to price pressures, Marcus said today in a speech in Johannesburg.

Marcus told economists on April 22, three weeks before the last MPC meeting, that the benchmark interest rate would probably remain unchanged in an attempt to damp expectations at the time for a rate cut. The Reserve Bank has reduced the key rate seven times to 6.5 percent since December 2008, and markets are now pricing in a 50 percent chance of a rate cut again on July 22.

"She didn't give much away," Ian Marsberg, a strategist at Absa Group Ltd., said in a phone interview from Johannesburg. "What the market is pricing in, she views as appropriate. At this stage, we think rates are going to stay unchanged."

The yield on R157 government bond, due 2015, fell 2 basis points, or 0.02 percentage point, to 7.84 percent today. The rand was little changed at 7.68 against the rand as of 12:49 p.m. in Johannesburg.

'Hesitant, Fragile and Uneven'

"The question of policy guidance is when you see it necessary to say something because there is a view out there that needs to be engaged with," Marcus said. "At the moment, I don't think that's the case and I don't think there's need for policy guidance."

Recent economic data show a mixed picture for South Africa's recovery from last year's recession. Retail sales rose for a fourth month in April, gaining an annual 3.2 percent, while the purchasing managers index fell below 50 in June, indicating a contraction in manufacturing output.

"The recovery is taking place, but it is hesitant, fragile and uneven," Marcus said. "Its sustainability will be dependent on the global recovery in general and in Europe in particular." Growth in Europe, which buys about a third of South African exports, is going to be "very low for some time, perhaps not even in positive territory," she said.

Economic Growth

Africa's biggest economy expanded an annualized 4.6 percent in the first quarter, buoyed by a jump in manufacturing and mining exports. The bank expects the economy to grow about 3 percent this year, Marcus said.

"The approach that we take is that the data will tell us what we need to know," Marcus said. "We examine it very carefully." The bank has extended its MPC meetings by a half- day to two-and-a-half days to discuss financial stability and banking, she said...

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