Investec's Bishop on South Africa's Inflation Data

So it was less than we were expecting, but just by a tick. It doesn’t though mean that directionally things are getting better, they’re improving. Yes, hi. Look, I think things certainly are improving. You know we finding ourselves in a situation where we are seeing the downward trend in inflation continue. But of course, you know at 5.3%, it’s very well removed from the 4.5% that the Reserve Bank actually is looking for to cut interest rates in South Africa. Not only does it want 4 1/2% to cut interest rates, but of course as well it needs it to remain around there sustainably. And we think this is only likely to happen at the end of the year, in the September, November period. How much would the central bank have to cut by in order to start satisfying investors? I think you know interestingly for South Africa because we are very beholden on the United States interest rate cycle. What is happening in terms of the Rand is actually disappointment that the US is not cutting. And in fact what investors, certainly what we’d like to see from a Rand perspective is that the United States interest rate cutting cycle gets underway before the South Africa interest rate cutting cycle begins. And indeed quite a few cuts happen in the US to widen the differential between South Africa and United States interest rates. One of the reasons the Rand has been weak over the past couple of years is because of the fact we’ve actually found ourselves in a situation where we are obviously lagging behind in terms of the moves that the interest rate has done in the United States versus South Africa. So actually, it’s a bit of a converse situation. And the longer South Africa delays, its interest rates cuts and the quicker the US starts, the better it would actually be for the Rand. The Rand has dropped 3.2% versus the dollar this year. How much more could it go? What can the economy take, Annabelle? So every time you you quite correct, the Rand weakens. We obviously find ourselves a situation where it feeds through in terms of high inflationary pressure. And of course, that’s negative for South Africa’s economy. It results in a drop in real incomes. Of course, it has a negative effect on consumer spending and consumer spending accounts for 2/3 of GDP in South Africa. So it is quite a significant event. But of course you know we do find ourselves in a situation as well like all emerging market economies that our currency is weak along with some commodity currencies because of the fact that we continue to await the interest rate cut cycle in the United States. So you know the effect of the matter is that South Africa does tend to absorb the currency weakness. We’ve already seen significant net sales established both for South African bonds and South African equities from a foreign investor perspective. So unfortunately this is where we find ourselves. Once we do see in monetary easing in the United States, then it is very likely that you do tend to see foreign investors develop a risk taking attitude towards emerging market portfolio assets. Certainly for South Africa bonds, we would expect them to benefit and that’s when we do start to see the currency strengthen quite substantially. So that’s really the situation we find ourselves in along with the other EMS. Yes. Annabelle, can I ask you very briefly about Nigeria because it has a major Forex problem, major foreign reserves problem. Do you see it getting solved anytime soon or at least improving? We don’t really look at Nigeria but of course, you know, obviously a very detrimental situation and I think you know a lot of work needs to be done.