Domestically, inflation news has improved despite rand weakness and the case for an early cut in interest rates is now very strong, Nedbank Group's economic unit said on Friday.

"There have even been official hints that an easing is not far off - for example, in Governor Mboweni's 28 November annus horribilis speech," Nedbank said.

The December monetary policy committee meeting could well yield the necessary change in policy.

"[A]lthough we still think that the committee may be cautious and delay cuts to early 2009."

However, the first cut was now unlikely to be later than February given the overwhelming evidence of local and global economic weakness, the deflationary forces at work and the dangers of waiting too long, Nedbank said.

It added that monetary policy was being eased across the globe, with key central banks reducing their policy rates to multi-year lows.

"In this week alone the Reserve Bank of Australia reduced its key rate by another 100 basis points (bps), the Bank of England by a large 100 bps, the European Central Bank by 75 bps and the Swedish Riksbank by 175 bps."

Turning to the release of reserves by the SA Reserve Bank (SARB) earlier, Nedbank said the improvement of the international liquidity position reflected mainly the rise in the value of gold reserves as well as a reduction in foreign loans.

On Friday, the SARB said that the country's net gold and foreign exchange reserves had increased to US32.5 billion at the end of November from US32.1 billion in October.
According to Nedbank, uncertainty and volatility in global financial markets continued to inhibit the Reserve Bank's natural tendency to accumulate reserves.

"Given the extreme circumstances that prevailed over the past month, it is surprising that the effect on the international liquidity position was so muted, suggesting that the Reserve Bank remains content to avoid intervening, even modestly, in the exchange rate market."

Global uncertainty was likely to persist in the short term as the outlook for the global economy deteriorated, Nedbank added.

"South Africa's external position will be vulnerable given the size of the current account deficit and approaching elections ... Reserves will probably remain under pressure over the next few months."