Daily Equity Report

As widely expected the Reserve Bank dropped interest rates by a further 1%, which should allow banks to lower their prime rate to 13%. They have been criticised for being a tad behind the curve when compared to their global counterparts who are virtually at rock bottom with interest rates.

While noting that the global economy has continued to weaken significantly, which has now also impacted the South African economy, the focus is still very much on the outlook for inflation.

The last number that was released was January inflation at 8,1%, where it is expected to average for the first quarter of 2009.

The Reserve Bank then expects inflation to drop to below 6% in the third quarter of 2009.

Reserve Bank governor, Mboweni notes that global “growth” as estimated by the IMF was dropped from 0,5% in January to the current expected contraction of up to 1% in 2009. World inflation is constrained by declining demand and lower commodity prices.

However the IMF is notoriously behind the curve in their forecasts.

But while inflation is likely to ease back in South Africa, giving the Reserve Bank the opportunity to lower interest rates by a possible 2% for the rest of 2009, G7 countries are trying to stimulate price increases and avoid deflation. They have been relatively quick to drop their key interest rates to almost 0%.

At the same time Switzerland, the UK and US have started programs of printing of money to introduce into the financial system. The number one aim is to avoid price deflation and to try and stimulate inflation.

There are some signs of green leaves in this regard. Today the FT reported that UK inflation for February defied expectations to rise for the first time in 5 months. Their CPI index rose by 3,2% for the year to February. This was higher than economists had expected.

The local Financial index gained some ground, but the market as a whole was down 1,47% - still up strongly for the month to date.

The US markets opened weaker after Monday’s incredible up day.

UK and Europe markets are down.

The Rand is trading at R9,46/dollar, R13,83/pound and R12,77/euro.

Kind regards

Ian de Lange
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966