RMB: Rate hike only likely in May 2012

RMB has changed its view on rates, it said on Wednesday.

"Recent events in the US and eurozone, and yesterday's FOMC statement in particular, have resulted in us revising our repo rate forecast substantially."

RMB added that it had taken rate hikes off the table for 2011, (its forecast was for the first hike to occur in November), with the first hike only likely in May 2012, at the earliest.

"However, we think there is a significant probability that the hiking cycle will be delayed into 2013. In the interim the probability of a rate cut outweighs that of a rate hike due to the rising threat of a double-dip recession in the global economy."

RMB gave the following as reasons for its view change: "the FOMC yesterday explicitly attached a timeline to its 'extended period' language, indicating that rates will remain at 'exceptionally low' levels until at least mid-2013; the decline in global and local equity markets poses a significant risk to the wealth effect and hence private sector demand; the negative implications for local growth of a sustained moderation in global growth; as a result domestic employment growth, which was already under threat from high wage settlements, will face additional headwinds; finally, with the guarantee of low US rates for the next two years, rand appreciation will very likely resume once global markets settle."

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