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50/50 chance of interest rates going up today - economists

By unknown | Apr 10, 2008 | COMMENTS [ 0 ]

Robert Laing

Robert Laing

Economists are evenly divided on whether Reserve Bank governor Tito Mboweni will announce an interest rate increase when he gives the Monetary Policy Committee's verdict at 3pm today.

The central bank generally holds its lending rate to commercial banks, called the repurchase agreement or "repo" rate, around 4percent above the inflation rate. It uses Stats SA's consumer index excluding mortgages (CPIX) as its gauge.

The MPC at its last meeting in February decided to hold the repo rate at 11percent despite the most recent data showing accelerating inflation.

Stats SA recently published February's CPIX as 9,4percent, meaning the difference between the repo and CPIX rates was 1,6percent, less than half the average margin the central bank tries to maintain. This will have narrowed further last month.

The consensus among economists was that inflation would peak last month at around 9,8percent and then start to gradually decline from this month. But now many have changed their forecast because of Eskom's request for its regulated price to be substantially increased from mid-year.

If Eskom's request for a 60percent tariff increase is approved, instead of inflation sinking back to around 8percent by July, it will then peak at over 10percent when the electricity hike appears on bills.

If Mboweni announces the repo rate will rise to 11.5percent, commercial banks will respond by raising the prime rate they base their home and other loans on to 15percent.


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