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Interest rate climbs higher as shoppers head to the mall to splurge

By unknown | Oct 18, 2007 | COMMENTS [ 0 ]

Phumza Macanda

Phumza Macanda

Interest rate increases in June and August did little to dampen South Africa's appetite for shopping, vindicating Reserve Bank Governor Tito Mboweni's decision to raise interest rates by 0,5percent again last week.

Retail sales growth quickened to 6,9percent in August from the same month last year, Statistics South Africa reported yesterday.

"Well, it definitely shows that the consumer is not battling and is still doing very well. I think from these figures we could say the Reserve Bank was justified to increase interest rates last week. We could see further hikes going forward," Nico Kelder, economist at Efficient Group, said.

Mboweni said on Tuesday he would do whatever was necessary to bring inflation back to target, and households needed to feel the pinch to slow their spending.

The targeted consumer price index excluding mortgages (CPIX) inflation measure has stayed above the central bank's 6percent ceiling since April and came in at 6,3percent in August.

Mboweni said the Bank remained committed to its role to lower inflation, before other considerations such as economic growth. "Despite 300 basis points of tightening at the time, there is little sign of any significant slowdown in the South African economy," said Razia Khan, head of research, Africa Region at Standard Chartered in London.

"This does not yet suggest that the Bank will have to tighten in December but clearly (it) will be monitoring whether overall retail sales growth remains robust," she said.

Some economists believed the data would make it difficult for the Monetary Policy Committee to hold policy steady when it next meets in December.

"When you have the combination of strong household expenditure and what we know to be a rising inflation environment, then I think the interest rate market would become less convinced that December is a hold," said Absa Capital's Head of Research Jeff Gable. - Reuters


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