Business life: My finance news blog

South Africa’s central bank may cut its benchmark interest rate by 1 percentage point on Feb. 5, the biggest reduction in more than five years, to stimulate an economy heading toward a possible recession.

Reserve Bank Governor Tito Mboweni will lower the repurchase rate to 10.5 percent, according to 14 of 22 economists surveyed by Bloomberg. The rest expect a half-point cut. Mboweni is scheduled to announce the rate decision at a televised press conference at about 3 p.m. in Pretoria.

Central banks around the world are slashing borrowing costs to boost demand amid the worst financial crisis since the Great Depression. The Reserve Bank, which reduced its key rate by half a point in December, has room to cut rates further after oil prices tumbled and economic growth slumped to a decade low in the third quarter.

“The story isn’t about inflation anymore,” said Colen Garrow, an economist at Brait SA in Johannesburg. “It’s about economic growth and job creation. That’s what we have to protect. The Reserve Bank has to pick up the pace of rate cuts. If not, we’re pushing the economy into recession.”

Inflation eased to a nine-month low of 10.3 percent in December from 12.1 percent in the previous month, the statistics office said on Jan. 28. The Reserve Bank forecast in December inflation will drop into the 3 percent to 6 percent target range in the third quarter.

Inflation Changes

The inflation rate may have dropped further in January when the statistics office reduced the weighting of food and transport costs in the consumer price index. Statistics South Africa will tomorrow publish 2008 inflation data based on the overhauled consumer price index, showing the impact of the changes for the first time.

“We could see inflation at 7 percent or lower in January, and hitting the middle of the 3 percent to 6 percent target range by mid-year,” said Arthur Kamp, an economist at Sanlam Investment Management in Cape Town.

Six interest rate increases in the year through June 2008 pushed the retail industry into recession, while the global credit crunch curbed gold and platinum exports, cutting economic growth to an annualized 0 credit score.2 percent in the third quarter.

Vehicle Sales

Vehicle sales data for January is due to be published tomorrow, giving a further indication of consumer demand. Investec Asset Management is also expected to publish the Purchasing Manager Index later today.

In political news, President Kgalema Motlanthe will deliver his first state-of-the nation address on Feb. 6, when he is expected to announce a date for South Africa’s national and provincial elections. The poll must take place by mid-July.

In corporate news, Harmony Gold Mining Co., Africa’s third- biggest gold producer, may say on Feb. 6 that fiscal second- quarter profit excluding one-time items surged almost fourfold, according to the median forecast of four analysts surveyed by Bloomberg. Profit probably rose after the rand weakened against the dollar, benefiting Harmony, which pays most of its costs in the local currency and sells gold for dollars.

DRDGold Ltd. is due to publish quarterly profit on Feb. 6, while Northam Platinum Ltd. and Aquarius Platinum Ltd. are scheduled to release earnings on Feb. 5.

Markets

Last week, the rand closed little changed against the dollar. Government bonds advanced, with the yield on the benchmark 13.5 percent security due September 2015 dropping 11 basis points to 7.43 percent. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest- rate expectations, fell 23 basis points to 6.9 percent. Yields move inversely to bond prices.

The benchmark FTSE/JSE Africa All Share Index advanced 5 percent to close the week at 20,570.05. BHP Billiton Ltd., the world’s largest mining company, rose 7.2 percent to 174.25 rand while Anglo American Plc, the fourth largest, climbed 5.2 percent to 185.97.

The following is a list of important events taking place in Southern Africa next week:

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