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Minister of Cooperative Governance and Traditional Affairs Des Van Rooyen. Picture Credit: Gallo Images
Van Rooyen suddenly withdraws his interdict

In another twist involving the public protector’s office‚ the Minister of Co-operative Governance an.

Nervous investors might cause rate hike

By unknown | Oct 24, 2006 | COMMENTS [ 0 ]

Gordon Bell

Gordon Bell

Reserve Bank Governor Tito Mboweni said yesterday that investor concerns over the current account deficit might threaten the inflation outlook, raising the risk of more interest rate hikes.

The rand weakened almost 20c after his comments to R7,67 against the dollar from Friday's close of R7,50.

A current account deficit of more than 6 percent of gross domestic product has been a key factor in the rand's 16 percent fall against the dollar this year.

The bank has so far increased its repo rate, the rate at which it lends to banks, by 150 basis points, to 8,5 percent since June, to tame inflationary pressures.

"Though the deficit is currently more than adequately financed by capital inflows, investors' fears relating to the sustainability of the deficit increase the risks of exchange rate adjustments," Mboweni said.

This could threaten the longer-term achievement of the 3 percent to 6 percent inflation target, he said.

The current account deficit, widened through import demand during several years of rand strength, has been financed mainly by portfolio inflows.

But concerns over the sustainability of economic growth, at its strongest in more than two decades, and growing investor interest in emerging markets with current account surpluses could curb the inflow.

Mboweni also said that risks to inflation had risen recently because of high consumer spending, rising private sector credit and high international oil prices.

Economists said the comments backed the case for more interest rate hikes this year and into next year.

"I think he's reaffirming that there is sufficient reason to still put interest rates up," said Colen Garrow, Brait Merchant Bank economist. - Reuters


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