DATA showing South African households and companies continue to cut back on credit and that factory gate inflation is falling, again, have stoked hopes for another interest rate cut.
The numbers may knock hopes of a swift exit from recession and a deteriorating jobs picture will heap pressure on President Jacob Zuma's government to do more to help the poor at a time when tax revenue is dwindling and the fiscal deficit is rising.
The SA Reserve Bank (SARB) yesterday said private sector credit growth cooled to its lowest level in 43 years as South Africans struggle in the country's first recession since 1992.
The Bank left interest rates unchanged at its last two meetings citing balanced inflation risks, after reducing the repo rate by 500 basis points to 7,0% since December.
Some analysts said the weak credit growth and producer inflation falling 3,7% year-on-year in September - the 5th consecutive month of decline - had reopened debate on whether there was room for another cut this year to boost the economy more.
"We still think that there is a possibility that interest rates may be cut further, maybe in December," said Citadel economist Salomi Odendaal.
"It's not out of the question with inflation numbers on the low side, and . we think there is still room for another interest rates cut," she said, also alluding to annual consumer inflation braking to 6,1% from 6,4% - within sight of the 3 to 6% band.
Nedbank said: "The Reserve Bank's latest monetary policy statement was dovish in tone suggesting that concerns that growth will disappoint remain."
"We believe that should the recovery lose momentum over the coming months the Bank may cut rates by 50 basis points one last time this cycle."
But, some economists said although consumer inflation was inching closer to the central bank's target , inflationary pressures loomed, particularly from expected big increases in power prices.
The Bank said last week high electricity prices posed one of the biggest risks to the long-term inflation outlook.
"I don't think there is scope really for interest rate cutting ... Eskom tariff hikes will also take effect next year which will push up inflation," said Efficient Group economist Freddie Mitchell.
Absa Capital said: "The concerning inflation outlook, along with both our and the Reserve Bank's expectation for a moderate economic recovery in the coming quarters, should keep the SARB in a neutral mood for some time. We see interest rates remaining at current levels well into 2010 with a gradual tightening cycle in Q3." - Reuters