The dramatic decline in the latest consumer inflation figures has fuelled speculation the Reserve Bank will cut interest rates by two percentage points, which will give a boost to bond and equity prices this week, but is likely to stem the rand's strength.
Statistics SA reduced all consumer inflation figures from January last year after admitting that outdated rental data had distorted the inflation numbers, resulting in an overstatement of CPIX (consumer inflation less mortgages) of 1,9 percentage points in March. As a result, April's CPIX slowed to an annual 8,5% from a revised 9,3% in March (previously 11,2%).
Economists said the sharp decline in CPIX had sealed the fate of a one percentage point cut in interest rates, but there was now growing speculation the Bank would act more boldly when its monetary policy committee (MPC) met next week.
" Our expectations are that interest rates could be lowered by as much as two percentage points after the meeting," said Standard Bank economist Johan Botha.
Figures released by Stats SA on Friday show that February CPIX the most recent inflation numbers used by the MPC in its March meeting was overstated by two percentage points at 11,3% rather than 9,3%.
Debate is now raging about whether the Bank would have acted differently by lowering interest rates in March, rather than holding them steady. This has fuelled speculation the Bank may cut interest rates by two percentage points next week.
Bond markets rocketed on Friday after the revised consumer inflation figures were released, sending bond yields to record lows, while the rand ended the day steady against the dollar after initially dropping to R8,2013 from its previous close of R8,0825.
However, the markets largely ignored shocking money supply and private sector credit figures for April, showing significant inflationary pressure from monetary aggregates.
The broad money supply measure, M3, surged an annual 10% in April, compared with the previous month's growth of 5,87%, while the interest-rate sensitive components of private sector credit growth continued to show robust demand.
Business Day
Publisher: Business Day
Source: Business Day
CPIX decline may prompt bigger cut.
Posted On Monday, 02 June 2003 02:00 Published by eProperty News
The dramatic decline in the latest consumer inflation figures has fuelled speculation the Reserve Bank will cut interest rates by two percentage points, which will give a boost to bond and equity prices this week, but is likely to stem the rand's strength.
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