(Wraps CPI, PMI and retail sales data)
* CPI steady at 6.1 pct y/y in Dec
* PMI back in contraction territory
* Retails sales growth lower than expected
By Phumza Macanda
JOHANNESBURG, Jan 18 South Africa's
manufacturing sector is in the doldrums and growth in consumer
demand slowed more than expected, suggesting economic growth
might not be strong enough to withstand rate increases this
The Reserve Bank's first monetary policy committee meeting
of the year is underway, with its decision due on Thursday
around 1300 GMT.
The bank is expected to leave the repo rate unchanged at 5.5
percent with deliberations likely to focus on when it can start
to safely raise rates without harming a sluggish recovery.
In a Reuters poll all 25 analysts expected the Reserve Bank
to leave the repo rate unchanged with twelve expecting rates to
start rising next year. Two saw a chance of another rate cut
before year end 2012.
Government bonds firmed on the day and rates in the money
market eased as Wednesday's data suggested monetary policy could
remain accommodative for longer.
Annual inflation steadied at 6.1 percent in December,
outside the Reserve Bank's target of 3 to 6 percent for the
second month in a row on the back of food, fuel and administered
prices, not demand pressures that could stoke a case for higher
The bank sees inflation staying outside its target band for
most of 2012 but has said it would not raise rates only on
cost-push pressures such as food and fuel prices.
The Reserve Bank has to time its monetary tightening
carefully because the economic recovery is still fragile.
Purchasing Managers Index data, a key gauge of manufacturing
activity, fell to 49.4 in December, dipping into contraction
territory after three months above the break-even point of 50.
"The PMI data bodes ill for the domestic economic outlook,"
said Standard Bank in a note.
"We believe that there is scope for the SARB to ease policy,
particularly if downside risks to economic growth posed by the
ongoing debt crisis in Europe, increase.
The Reserve bank has said although its primary focus remains
inflation targetting, it would be sensitive to growth worries,
which have been exacerbated by the crisis in the euro zone,
which is South Africa's largest trading bloc.
On the demand side, retail sales slowed more than expected
to 6.8 percent year-on-year in November, suggesting consumers
are still struggling.
Consumer demand will contribute positively to fourth quarter
growth but the 3.1 percent GDP growth seen by the National
Treasury for 2011 and 3.4 percent this year are a fraction of
the 7 percent needed to create jobs.
With the benchmark rate at 5.5 percent, the Reserve Bank
still has room for further loosening should there be a need.
"The MPC may even cut rates if growth weakens significantly
further," said Annabel Bishop, economist at Investec.
In the market, the yield on the 2015 bond fell 9.5
basis points to 6.675 percent and that on the 2026 bond
was down by the same margin to 8.43 percent.
Rates in the FRA market - forward rate agreement that is a
gauge of interest rates expectations - also fell with the 6x9
contract easing to 5.62 percent from 5.72 at the start of the
(Editing by Ron Askew)