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No more big rate cuts - Mboweni

By unknown | May 29, 2009 | COMMENTS [ 0 ]

Brendan Boyle and Benjamin Bradlow

Brendan Boyle and Benjamin Bradlow


RESERVE Bank Governor Tito Mboweni threw the sinking economy another 100 basis point lifeline yesterday, but warned that 7,5percent was probably as low as the Bank's benchmark repo rate was likely to go.

"The mood in the committee is not really for any further significant reductions in the repo rate. We have probably done as much as we can do," he said after announcing the Monetary Policy Committee's decision to cut rates for the fifth time in as many months.

The National Union of Metal Workers (Numsa), which led a march to the Bank on Wednesday, promised to intensify action against Mboweni and the government's inflation targeting regime.

"One hundred points is a step in the right direction, but it is really nothing at all to our members, who are seeing their jobs cut to three or four days a week - or nothing at all," Numsa spokesperson Alex Mashilo said.

He said the union would ask Cosatu and the National Union of Mineworkers to back a full work stoppage and another march to the Bank when the committee meets in June.

"We never expected anything from a man who implements such a conservative policy, but we will visit him again and this time we will bring production to a halt," he said.

Stanlib economist Kevin Lings said he expected the Bank to deliver at least another 100 basis points in cuts, but at a slower pace.

"I think the trade unions' call for a more aggressive cut right now was unrealistic given the circumstances. The risk for unions has to be, under current circumstances, that aggressive wage demands lead to further job losses," he said.

The cut pushes the real interest rate into the red with the repo rate now around one percentage point lower than the 8,4percent consumer price inflation rate announced on Wednesday.

It brings the monthly instalment on a 20-year, R500000 mortgage loan charged at the prime rate down by R344 to R5161 and by R1608 from the peak rate charged before the first cut of the current series of rate cuts in December.

Mboweni said the Bank's inflation forecast was not much changed, but added that price "stickiness" was one factor in his warning that there probably would not be any further rate cuts.

He said the Bank had lowered its hopes for a recovery. "There are tentative signs that the downturn in the global economy may be bottoming out as financial market conditions appear to have become less restrictive. However, there are few convincing indications that the recovery will be quick."

'We have probably done as much as we can do'


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