Details on the shortfall, and its potential effect on the rand and inflation, will be one of the main stumbling blocks to an anticipated rate cut at the Bank?s monetary policy meeting this week. Consensus forecasts from a Reuters poll predict that the deficit widened to 7,8% of gross domestic product (GDP) from 7,3% in the second quarter of this year, boosted mainly by a sharp rise in the value of oil imports ? which are now falling. The figures will be released today in the Bank?s December quarterly bulletin. RMB believes that the shortfall widened to 8,2% of GDP during the third quarter and will amount to 8,1% for the entire year ? up from 7,3% last year and scaling a 56-year peak. ?This is one of the biggest deficits in the world and means that overall domestic demand continues to run ahead of domestic supply, which could not have been possible if monetary policy had been overly tight,? said RMB analyst Ettienne le Roux. ?By cutting interest rates when the deficit is actually deteriorating, what message does the MPC (monetary policy committee) send? If the currency weakens on the news as we suspect, it is another factor that will make it difficult for the MPC to cut.?

Markets have fully priced in a cut of half a percentage point in the Bank?s 12% repo rate on Thursday, and most economists are also betting that this will be the case. But four out of five of SA?s biggest banks ? RMB, Standard Bank, Nedbank, and Investec ? think that monetary policy will stay on hold until early next year, when the effect of changes to the way official inflation is calculated will become more clear.