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No change in rates

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

Robert Laing

Robert Laing

The Reserve Bank's Monetary Policy Committee has voted to hold interest rates steady, as unanimously predicted by leading economists.

This dashed indebted householders' hopes that South Africa might follow the US, European Union, Australia, China and other countries which have had to abandon their fight against inflation to prop up distressed banks.

But Reserve Bank governor Tito Mboweni said the committee did not even discuss cutting rates.

"The South African banking and financial system remains stable," he said yesterday.

This is the third time the committee, which meets every two months, has voted to maintain the central bank's repurchase agreement (repo) rate at 12percent.

South African commercial banks by convention add 3,5percent to the repo rate to set the prime rate on which their home, car and other interest rates are based.

Fears that the Reserve Bank might raise interest rates because the consumer price index excluding mortgages (CPIX) overtook the repo rate in July were allayed by Mboweni.

The Reserve Bank believes we are over the inflation hump. Mboweni said inflation is expected to average 13,3percent for the third quarter. Since July's figure was 13percent and August's 13,6percent, this implies the Reserve Bank's economists expect September's CPIX to come in at around 13,3percent.

CPIX is expected to average just over eight percent during the fourth quarter of this year to bring the year's average inflation to 10,2percent.

This is higher than the nine percent predicted in the previous bimonthly inflation expectations survey that the Reserve Bank commissions from Stellenbosch University's Bureau of Economic Research.

The bureau's poll found a slightly more gloomy outlook for next year's inflation, with the 2009's average rising to 8,1percent from the 7,9percent expected before the July's Monetary Policy Committee meeting.

Mboweni said a deteriorating view of inflation was not only evident in economist polls, but also in bond yields and wage increase demands.

The consensus among economists is the committee's next vote on 11 December will again see the repo rate held at 12percent.


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