Some good news going into the long weekend. The South African Reserve Bank’s monetary policy committee (MPC) has cut the key repo rate by 100 basis points. This brings the rate down to 8.5%, with the prime lending rate dropping to 12% from 13%, with effect from May 4. The repo rate is the rate at which the central bank lends to other banks, while the prime lending rate is the benchmark rate at which banks lend to customers. Since December 2008, interest rates have come down by a total of 350 basis points.

Data released today (29 April 2009) shows that South Africa’s targeted consumer inflation slowed slightly to 8.5% year-on-year in March from 8.6% in February. Analysts had predicted the rate to come down as low as 8.4% but they were not too far off. It is expected that the consumer price index (CPI) should come down to the central banks target of between thee and six percent by October this year. Headline CPI inflation stood at 1.3% on a monthly basis in March compared to 1.2% in February.

All eyes will now be on the central bank tomorrow when they make a decision on interest rates. Most are expecting interest rates to go down by 100 basis points tomorrow but we could only see a 50 basis point drop.

The delicate state of the global economy could be rocked by an outbreak of swine flu, which has killed over 100 people in Mexico and infected many others in the United States, Canada, Spain and New Zealand. 

Underscoring the serious nature of an outbreak is a study conducted by the World Bank in 2008, which estimated a major swine flu pandemic could cost $3 trillion and cause worldwide gross domestic product (GDP) to plummet almost 5%.

"A nasty chill will run through the market…as people think back to the SARS virus," Justin Urquhart Stewart, investment director at Seven Investment Management, told Reuters.

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The elections are over now in South Africa and the ANC won the elections by sweeping 65.9% of the votes. The fact that the ANC did not get the two thirds majority vote need to be able to change the constitution is seen by financial analysts as a good thing. The ANC themselves may not be too concerned about not winning a majority vote as they probably have no intentions of changing the constitution but investors may see this as a good thing. Investors tend not to be keen on one-party states.

Many analysts are expecting the economy to remain the same even if Jacob Zuma is the president of the country. It is very unlikely he will make drastic changes to economic policy. The first thing Zuma may want to do is to make sure that Trevor Manuel and Tito Mboweni remain in their respective positions of minister of finance and reserve bank governor. These two have in many peoples eyes been behind the relative success of the South Africa economy.

What is critical though is that we as South Africans should not think we are immune to the global economic crisis. I have heard many people thinking that what is happening in the USA and Europe will not happen in South Africa. I beg to differ. We could possibly head the same direction as those countries currently struggling, if economic policies are not kept in check and thus the importance of good governance.

A lot of eyes are going to be focusing on the ANC in the upcoming months to see how they deliver. More so now that there is a larger opposition presence in National Assembly committees as well as a significant DA and COPE presence in the National Council of Provinces. The ANC failed to win the Western Cape vote which went to the DA. It will be interesting to see how the ANC handles the Western Cape as it is one the most richest and important provinces in South Africa economy.

Now that we know the ANC has won the elections and Jacob Zuma will be the next president of South Africa, everyone is waiting to see if current minister of finance, Trevor Manuel will remain as the minister of finance in the Zuma lead government. It would be really unwise for Zuma to get rid of Manuel who many people, including the important foreign investors, have faith in. There was a time, not too long ago, when some had thought that Manuel was going to step up after Thabo Mbeki was recalled, and that sent the markets into a frenzy as they feared that a departure by Manuel could cause chaos in the South Africa economy.

On Monday (27 April 2007), a senior official in the ANC said Trevor Manuel will continue to have a cabinet-level role in government thus quashing away the specualation that Manuel may be given another role which is not that of a minister. ANC treasurer-general Mathews Phosa, a former lawyer and ally of new South African President Jacob Zuma, said the final decision on Manuel’s future would be made in the next two weeks. I guess we just have to wait until then to find out exactly what is going to happen to Trevor Manuel.

On the day that ANC President, Jacob Zuma was decide not to be prosecuted by the National Prosecuting Authority (NPA) for alleged fraud, corruption, money laundering and racketeering, the rand did not react. Some of us had thought that this news may cause our local currency to take a knock as foreign investors may have reacted to this decision. But for now, the rand has not reacted; who knows, maybe in a couple of days or weeks, we will start to see movements in the rand, triggered by the Jacob Zuma decision. But it will be very difficult to say that the rand has dropped or gained strength becuase Zuma hs been cleared. The closest we could have got to see the rands reaction to this whole Zuma saga would have been today when then decision was made but alas the rand was not phased.

At 16:05 the rand was bid at 9.0458 to the dollar from an overnight close of 9.0310. It was bid at 12.1635 to the euro from a previous 12.2020 and at 13.4080 against sterling from 13.4085 before.

I guess at the end of the day, many expected the Zuma decision to go as it went, so business as normal, life goes on.

The rand reached a five and a half month high yesterday (Thursday) against the greenback this on the back of positive equity markets across the world following the news from the G20 summit that they have agreed to a deal making available more than $1 trillion in additional funds for leading international financial institutions, and laid the groundwork for a recovery of the global economy. The news from the G20 sent global equity markets soaring into positive territory. In South Africa, the JSE All Share index closed 3.19% in the positive whilst the rand was trading at 9.1350 against the dollar at 17:35, about 2.3% firmer than its previous New York close of 9.3505 on Wednesday. It touched 9.1102 earlier, its firmest level since October 15, according to Reuters data. Could this just be a sign that the world economy is starting to recover due to the G20 summit? Watch this space.