tito puts rate cuts on hold

RESERVE Bank governor Tito Mboweni cited contradictory signals about the outlook for inflation yesterday and opted to sit on the fence for the next two months - with the Bank's indicative interest rate steady at 7,5percent.

Cosatu called the decision "shocking", warning that members would look for ways to express their anger.

Speaking after the National Energy Regulator had granted Eskom an electricity tariff increase of almost a third, Mboweni said prices in the hands of the state, known as administered prices, remained a threat to inflation.

The increase was slightly lower than the 34percent Eskom had asked for, but Mboweni said the difference was not significant.

"It still poses a risk to the inflation outlook - no doubt about it." Mboweni said.

"I still appeal to my colleagues who in one way or another have an influence on the administered price outcomes to try and help and do something so that together we can bring inflation down."

Mboweni recently proposed a special one-off tax to fund Eskom's R365billion build programme, saying it would be less inflationary than a structural increase in electricity tariffs. The suggestion was not taken up by the government.

Mboweni said the lack of economic growth and reduced consumer spending pointed to a reduction in inflation. The recovery in the international oil price, wage increases and the step-change in the electricity price threatened to keep inflation high.

Cosatu spokesperson Patrick Craven said the labour federation had hoped for a cut of at least one percentage point to 6,5percent.

"This is a huge setback for our economy, for growth and for jobs," raven said. "Inflation is not the only enemy - unemployment and the recession are greater threats at this time."

Craven said the rate hold - combined with the Nersa decision on electricity tariffs - could mean the end of the road for many companies on the brink of collapse.

"We will have to look at our next move but I think our members will feel extremely angry - especially those who lose their jobs as a result."

Mboweni defended the bank's rate hold, saying: "The premise from which we must begin is that high inflation is bad for the working class and poor."

The decision disappointed home owners, but threw a lifeline to pensioners and other investors who have seen revenues from interest-bearing investments plunge by 4,5percentage points since the bank began a pro-growth rate cutting cycle in December.

Property market players took the rates decision in their stride, saying the earlier cuts were still working through to house sales.