Americans can expect a rate cut

Lihle Z Mtshali

Lihle Z Mtshali

The US Federal Reserve meeting on interest rates, which ends today, is expected to produce yet another rate cut, in what is widely anticipated to be the end of the monetary policy loosening cycle.

In a bid to stimulate that country's economy, the Fed has already cut interest rates in six steps from 5,25percent in mid-September last year to 2,25percent.

Although economists agree that the Fed will cut rates today, they have not reached a consensus on how much rates will be cut.

Azar Jammine, chief economist at Econometrix, was expecting a 25 basis point cut, while Standard Bank economist, Shireen Darmalingam and Dennis Dykes, an economist at Nedbank, both expected a 50 basis point cut, which would bring interest rates to 1,75percent.

Darmalingam said yesterday a 25 basis point cut would not have a good effect on the US economy, whereas anything above 50 basis points would signal panic.

The US economy has been brought to the brink of recession by the sub-prime crisis, in which lenders offered loans to higher-risk borrowers who were unable to pay their mortgages when interest rates went up.

The positive effect of the cuts, said Jammine, was that it had enabled risk aversion to emerging markets to decline, which had seen the rand recovering against the US dollar.