BuaNews (Tshwane)
Michael Appel
14 August 2008
Pretoria — Economists say it is likely the Monetary Policy Committee (MPC) will keep the interest rates unchanged when they announce the outcome of their two-day meeting today, however it will be a close call.
The MPC will this afternoon, following a review of the current monetary policy, announce whether the interest rate will be hiked or left unchanged.
After 10 interest rate hikes or a cumulative 5 percent increase in the repo rate since the inflationary cycle began in June 2006, it seems tightening monetary policy is finally beginning to pay off.
Economist at Econometrix Treasury Management (ETM) George Glynos told BuaNews a likely scenario would see the repo rate remaining stable at 12 percent after a 50 basis point increase in June 2008.
"We believe it will remain unchanged, but it's going to be a close call. It actually wouldn't surprise us if the Reserve Bank gives the interest rate one last hike," said Mr Glynos.
There has been a significant reversal in oil prices in the past two months and South African motorists can look forward to an 80 - 90 cents decrease in fuel prices by September 2008," Mr Glynos said.
"The Rand has remained reasonably resilient... and South Africa's trade deficit margin has narrowed. Whether this means South Africa is exporting more or importing less, we are not sure, but the trade deficit margin has decreased.
"The inflation trajectory at the moment remains on the upside, and the Reserve Bank could hike one more time to drive home the point that the revision of the CPIX basket does not have such a great effect as inflationary pressures are still evident," Mr Glynos explained to BuaNews.
Sanlam Chief Economist Jac Laubscher agrees that an unchanged interest rate is to be expected.
Mr Laubscher told BuaNews South Africa's inflation rate has reached its peak it seems, and that leaving interest rates unchanged would be wise.
"We predict an unchanged repo rate because we have almost reached a peak in inflation ... the Reserve Bank has also achieved what it set out to do, which was to cool consumer demand.
"Although the Reserve Bank does not directly take the oil price into consideration, the knock on it has on prices will definitely have an effect and the decline in oil prices will improve the economic environment," said Mr Laubscher.
With the changes in the Consumer Price Index excluding interest on mortgage bonds (CPIX) basket coming into effect in January 2009, as announced by Statistics South Africa (Stats SA), inflation is likely to be revised downwards.
"The economy has responded overwhelmingly to the interest rate hikes so far as there has been a significant slowdown in consumer demand, such that households are under stress and the effects are evident.
Speaking to BuaNews, Nedbank senior economist, Nicky Weimar said: "We believe the interest rate will remain unchanged because food prices are past their peak, the Rand, shaky at times, is steady, and oil prices have also peaked."
Interest rates will most likely be revised downwards in the beginning of 2009 allowing the Reserve Bank to get the inflation rate back within the 3 - 6 percent target band, sooner than expected said Ms Weimar.
According to Nedbank's predictions, inflation will fall back within the target band by about the second quarter of 2010.
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