Central bank 'likely to slash rates'

Robert Laing

Robert Laing

Markets are expecting Reserve Bank governor Tito Mboweni to announce a full percentage point cut in the repo rate on Thursday.

Speculation that interest rates will drop was fuelled by dovish comments Mboweni made in a recent speech: "The inflation outlook has been improved to some extent by a number of variables that previously were seen as upside risk factors. As mentioned above, the international oil price has declined significantly and global food price inflation appears to be moderating although is yet to feed through to domestic consumer prices. Domestic demand pressures have also subsided as household consumption expenditure has responded to the less accommodative stance of monetary policy."

Nedbank economist Isaac Matshego said: "Next week's Monetary Policy Committee meeting could well yield the necessary change in policy, although we still think the committee may be cautious and delay cuts to early 2009.

"However, the first cut is now unlikely to be later than February given the overwhelming evidence of local and global economic weakness, the deflationary forces at work and the dangers of waiting too long," he said.

Standard Bank's economics team, however, thinks a cut on Thursday unlikely.

"Contrary to market expectations, we believe the discussions around the timing and speed of the expected rate cut will be multifaceted, lending themselves to an unchanged rate stance for now.

"Our view stems from concerns over the general threat to price stability as a result of sustained rand weakness, and subsequent second round effects, and uncertainty, although less than before, over the reconfiguration of the consumer price index basket," Standard Bank economists Johan Botha and Danelee van Dyk wrote in their weekly preview.