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Tito Mboweni says MPC is determined to ensure that inflation returns to within the target range

By unknown | Oct 12, 2007 | COMMENTS [ 0 ]

Robert Laing

Robert Laing

Households aren't tightening their belts enough, according to the Reserve Bank's Monetary Policy Committee (MPC), which yesterday voted for its seventh 0,5percent interest rate increase over the past two years.

The Reserve Bank is raising its repurchase agreement (repo) rate to 10,5percent today, which in turn pushes up the prime overdraft rate on which commercial banks base their home and other loans to 14percent.

This means that a household paying off a R950 000 bond (Absa's September average mortgage value) over 20 years at the prime overdraft rate will see its monthly repayments increase by R343,39 to R11 813,45.

Since interest rates started going up in April two years ago, the monthly repayments would have risen by R2329.

Reserve Bank governor Tito Mboweni concluded his speech yesterday saying: "The MPC is determined to ensure that inflation returns to within the target range."

The most recent official data showed that households are already spending nearly 10percent of their income on servicing debt, and this will now rise.

George Glynos, Etm's market analyst, told I-Net Bridge: "We are surprised and disappointed. The move will have a detrimental impact on the whole country and we think that the move won't do anything to help suppress inflation other than lead to the strengthening of the rand."

Razia Khan, an economist at Standard Chartered, said: "With inflation likely to peak at a higher level, this was absolutely the right thing to have done. The rand will receive some near-term support from this.

"What does this now suggest for future rate moves? The anti-inflation credentials of the Reserve Bank should not be doubted. They will do whatever it takes to bring inflation back within the target range.

She added: "At this point, our feeling is - barring any unforeseen deterioration in the rand - that this may be it for the interest rate tightening cycle."


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