Presenter: Lindsay Williams  Guest(s): Chris Hart 

Chris Hart, senior Absa treasury economist, looks at comments from SA Reserve bank Governor Tito Mboweni as the rand strengthens, the dollar weakens and bond yields indicate a possible leveling in local interest rates

LINDSAY WILLIAMS: SA Reserve Bank governor Tito Mboweni was talking about inflation, talking about still keeping a watchful eye on consumer spending - what did you make of those comments this week?

CHRIS HART: I think the SA Reserve Bank Governor is in fact keen to keep the lines between them and the market open.

LINDSAY WILLIAMS: He’s in Frankfurt at the moment.

CHRIS HART: It’s interesting in terms of what’s being said, because I think things are being put in perspective - the warning about high interest rates and consumer spending is there, although I think it’s very clear that consumer spending is in fact starting to come off the boil. You’ve got to listen to what the Governor is saying, and watch these consumer numbers - if they’re coming off the boil maybe that signals this is the last in interest rate hikes. What is fascinating is to see the bond market and its performance relative to what interest rate expectations there are in the market - the ten-year R157 yield is already 100-basis points below where the repo rate is expected after the December meeting. In other words it’s 8.5% now - we expect it to be hiked to 9% in that meeting - and the ten-year is sitting around 7.9%...

LINDSAY WILLIAMS: So to put it in simple terms the traders on the capital market - the big money - is betting that there isn’t going to be another interest rate rise, or if there is going to be one that will be the last…

CHRIS HART: I think the more important thing the capital market is betting is that the inflationary concerns are overestimated - that in the long run there’s still value in this market, and that’s why the players are coming in. It’s also a very good indication that we may go back into a period where the rand starts to recover - we’ve already seen that, from the beginning of October until the present the rand against the dollar recovering virtually from eight right down to the current level around 7.21. We could go further, and that I believe is very likely - the dollar is starting to look very vulnerable at this stage with the divisions in the US. It’s a very polarised Congress at this stage…

LINDSAY WILLIAMS: I personally think the dollar is on a precipice against all major currencies just looking at the way its behaving.