FXStreet (Delhi) – Gabor Ambrus, Market Economist at RBS, suggests that with its 50bp rate hike and a promise to deliver more, the SARB made an important first step last week towards restoring South Africa’s battered credibility.
Key Quotes
“The next step, and a far more important one, will be made by Finance Minister Gordhan during his upcoming budget speech on 24 February. FinMin Gordhan will need to deliver a significant package of fiscal tightening and structural reforms, in the right size and proportions to restore policy credibility.
We think that the least that needs to be delivered is a fiscal correction to the tune of at least 0.7-0.9% of GDP (net of growth impact) –this is needed just to get back to the October debt projections. Furthermore, tangible steps in key structural areas, such as private sector involvement in the energy sector and the labour market, will be needed to complement fiscal measures.
The latter adjustments will prove to be a major challenge given the ANC’s close ties with the unions. We expect FinMin Gordhan to deliver, and this may create a temporary respite for South African asset prices, but the government will have to be able to maintain the momentum and face significant implementations risks to ensure that the changes are lasting.”
(Market News Provided by FXstreet)