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Repo rate cut back on the cards for South Africa as inflation seen easing

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By Vuyani Ndaba

JOHANNESBURG (Reuters) – South Africa’s economic growth will be much softer this year after the country slipped into recession in the first quarter, and with inflation easing an interest rate cut is back on the agenda, a Reuters poll found.

Africa’s most industrialised nation is expected to expand 0.7 percent in 2017, 0.2 percentage points slower than last month’s median as economists trimmed growth forecasts following South Africa’s first recession for eight years.

The median prediction for interest rates shows a cut is back in the forecast horizon – 25 basis points to 6.75 percent in January or March. Some economists have pencilled it in as early as July or September this year.

In March, the consensus was for the repo rate to be cut to 6.75 percent early next year but then President Jacob Zuma changed his finance minister for a fourth time, triggering debt downgrades and leading economists to push cuts off the horizon.

But a trimming is back on the cards and Mandla Maleka, chief economist at Eskom Treasury, said the cut could come earlier than 2018.

“It will be contingent on the persuasive improvement on domestic inflation and less volatile currency. Growth – much as it is not targeted by the Monetary Policy Committee – could be the game changer,” Maleka said.

After contracting 0.7 percent in the first quarter, the economy is expected to have rebounded and will expand 0.8 percent this quarter and 0.9 percent in the third.

In contrast to South Africa, the U.S Federal Reserve is widely expected to raise its interest rate this week due to a tightening labour market and may also provide more detail on its plans to shrink the mammoth bond portfolio it amassed to nurse the economic recovery.

South Africa’s Reserve Bank does not have the fire power of bond purchases like the U.S. Fed and only targets inflation, with an aim to keep it between a 3-6 percent range.

Consumer inflation slowed to 5.3 percent in May, and is expected to average 5.5 percent this year, a change to last month’s median of 5.7 percent.

Economists are worried that debt denominated in the heavily traded rand is in serious risk of being downgraded to “junk status” this year, ejecting it from crucial bond indexes that automatically invest in local bonds and prop up demand for the rand.

However, Thea Fourie, senior economist at IHS Markit, added that lower inflation and interest rate levels could support real incomes of households.

Fourie added South Africa’s growth environment was low partially due to very weak confidence, both for investors and consumers.

“This means big ticket spending plans are delayed,” she said.

The ruling African National Congress (ANC) is due to hold a conference at the end of June to review policy and make recommendations on amendments or new strategies. Investors hope that will address confidence issues.

 

 

(Editing by Alison Williams)

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South Africa’s rand clings on to gains despite downgrade fallout

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JOHANNESBURG (Reuters) – South Africa’s rand edged firmer on Wednesday, clinging on to recent gains despite continued fallout triggered by a Moody’s ratings downgrade last week and an anticipated interest rate hike by the U.S. Federal Reserve.

At 0640 GMT, the rand traded 0.2 percent firmer at 12.7350 per dollar compared to close of 12.7600 overnight in New York, bringing weekly gains to around 1.3 percent.

Following a one notch downgrade to its lowest sovereign investment grade on Friday, Moody’s cut the ratings of a dozen banks and companies including embattled power utility Eskom, further shaking confidence in Africa’s most advanced economy.

Quarterly business confidence and April retail sales due in the session are expected to shed more light on ailing economy. Growth shrunk 0.7 percent in Q1 2017 after a 0.3 percent contraction in Q4 of 2016.

Traders expect the U.S. central bank to increase interest rates by a notch when it concludes a policy meeting on Thursday, a move that could dampen demand for high-yielding emerging market assets.

South African bonds were flat, with the yield on benchmark 2026 government bond inching up 0.5 basis points to at 8.445 percent.

Stocks set to open higher at 0700 GMT, with the JSE securities exchange’s Top-40 futures index up 0.3 percent.

 

(Reporting by Mfuneko Toyana; Editing by Ed Cropley)

 

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Kenya government to guarantee $750 million in Kenya Airways debt

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By Duncan Miriri

NAIROBI (Reuters) – Kenya will offer $750 million in guarantees to Kenya Airways’ existing creditors to help the heavily-indebted carrier secure financing from other sources to complete its recovery, a cabinet document showed on Tuesday. The guarantees, approved by the cabinet, will cover $525 million owed to the U.S. Exim Bank and the rest to local lenders, said the document seen by Reuters.

The airline, partly-owned by Air France KLM and the Kenyan government, has struggled to return to profit after tourist traffic slumped four years ago following a spate of attacks by Somalia-based Islamist militants.

The government will also convert its existing loans to the carrier into equity, it said. It was not immediately clear how much it has lent the carrier, but a source at the airline said it was a “significant” amount lent over time. The plan to guarantee the existing debt will be taken to the National Assembly for approval, the government said.

“The guarantees would be in exchange for material concessions to be provided as part of the financial restructuring which would secure future funding for the company,” the cabinet document said, without giving details on the concessions.

The government views the airline as a strategic asset, supporting other industries such as tourism and encouraging investments from abroad. Several international firms have set up their regional headquarters in Nairobi to take advantage of Kenya Airways’ extensive route network on the continent. Kenya Airways ferries 12,000 passengers a day on its fleet of Boeing and Embraer planes to destinations such as Juba and Accra.

At 1012 GMT, Kenya Airways shares were down 1.5 percent at 6.65 shillings.

The government would not provide additional cash as part of the restructuring of the airline, it added.

The debt owed to the U.S Exim bank is related to the financing of the purchase of the carrier’s Boeing planes. Kenya Airways says the financial restructuring will involve restructuring debt and securing additional capital to help dig itself out of a position of negative equity, and attain a better balance between cash flow and debt repayments.

 

(Reporting by Duncan Miriri; Editing by Elias Biryabarema and Mark Potter)

 

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Zimbabwe bans grain imports after higher maize output

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HARARE (Reuters) – Zimbabwe has banned grain imports to protect local farmers after producing enough to meet domestic demand, a government minister said on Tuesday, just a year after a devastating drought left more than 4 million people in need of food aid.

The southern African nation’s grain agency has also raised $200 million from the government and private sector to purchase maize from farmers, the Herald newspaper said.

The national treasury last week forecast output of the staple maize at 2.1 million tonnes this year, from 511,000 tonnes in 2016.

“It is true we have banned all grain imports because we have produced enough this year and also because we need to protect our local farmers,” Davis Mharapira, the deputy minister of agriculture said.

Mharapira said the Grain Marketing Board would pay $390 per tonne for white maize, almost triple the $143 for the September contract for white maize in South Africa, one of the countries from which Zimbabwe has previously imported maize.

The deputy minister said the higher price would encourage farmers to produce more maize while the import ban would make it impossible for dealers to buy the grain abroad and resell it at a higher price locally.

Zimbabwe has since 2001 been importing maize to meet domestic demand of 1.8 million tonnes, blamed in part on seizures of white-owned farms by the government of President Robert Mugabe that hit commercial agriculture production.

Mharapira said the national strategic grain reserve was holding 180,000 tonnes of maize, far below its targeted requirements of between 500,000 and 700,000 tonnes.

 

(Reporting by MacDonald Dzirutwe; Editing by Ed Stoddard and Mark Potter)

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Nigerian acting president to sign budget on Monday

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ABUJA (Reuters) – Nigeria’s acting president will sign the 2017 budget into law later on Monday, one of his aides told Reuters, as Abuja plans record spending to pull Africa’s biggest economy out of recession.

The OPEC member has been in recession since last year, largely due to low oil prices and militant attacks on the country’s Niger Delta energy facilities. Oil sales usually bring in two-thirds of the government’s revenue.

Vice President Yemi Osinbajo is standing in for President Muhammadu Buhari, who has been on medical leave in Britain since May 7, his second prolonged absence this year. Buhari’s medical condition is unclear.

“The acting president will be signing the budget today,” the presidency aide said.

President Buhari issued a statement saying it was in the interest of the country for Osinbajo to sign the budget into law.

Lawmakers last month passed the record 7.44 trillion naira ($23.6 billion) budget plan, which is bigger than the 7.298 trillion naira draft spending plan submitted by Buhari in December.

Two other presidency sources who did not want to be named also said the budget would be signed on Monday.

Sources said Osinbajo was at an event in the southeastern state of Anambra on Monday and would fly back to Abuja for the budget signing ceremony later in the day.

Last year’s budget, passed in May 2016, was delayed for months due to disagreements between lawmakers and the presidency over spending plans that cut the supply of government money and deepened the economic crisis.

Buhari said in his statement, signed by his spokesman Garba Shehu, that the 2018 budget proposal will be submitted by October and parliament will conclude the process by December so the country can return to a normal budget cycle from next year.

 

(Reporting by Felix Onuah and Camillus Eboh; Writing by Ulf Laessing and Chijioke Ohuocha; Editing by Hugh Lawson)

 

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