By Vernon Wessels

Johannesburg - Tito Mboweni, the Reserve Bank governor, was likely to announce a 1 percentage point cut in interest rates on Thursday even though there was enough room to slash rates by up to 2 percent, Azar Jammine, the chief economist of Econometrix, said yesterday.

"There is considerable uncertainty whether the Reserve Bank will decide to cut interest rates by 1 percentage point or be more aggressive and cut by 1.5 percentage points," he said.

Mboweni's comments last week that the Reserve Bank was confident of reaching its inflation target was interpreted by the bond and forward currency markets as suggesting that the monetary policy committee (MPC) might again act boldly.

The Reserve Bank expected CPIX - consumer inflation excluding mortgage rates - which slowed to 6.4 percent in June, to fall within range by the end of the current quarter and to remain comfortably within the target next year, Mboweni said.

The eight-member MPC, which starts it two-day meeting on Wednesday, cut rates by an unexpected 1.5 percentage points in June.

Two of the members had called for a cut of 2 percentage points.

The central bank, although independent, is also under political pressure to reduce rates following comments from both finance minister Trevor Manuel and President Thabo Mbeki that the government wanted cheaper capital to accelerate economic growth.

The economy still seemed to be in sound shape, despite the high interest rate environment and strong domestic demand, Jammine said.

The Reserve Bank would also be wary of the inflationary impact of those wage settlements above the inflation target, he said.

Marisa Fassler, an economist at JP Morgan Chase Bank, said inflation should benefit from falling food prices and generally subdued goods price inflation in the months ahead, "but in the short term, rising oil prices remain a concern.

"Barring any negative shocks to the rand, strong growth in unit labour costs and stubbornly high growth in service inflation are the main threats to the long-term sustainability of low inflation in South Africa," she said.

The increased frequency of MPC meetings, from once a quarter to once every two months, would give the central bank the opportunity to cut rates again in October and December, Fassler said.

Brait economist Colen Garrow said the central bank would consider the impact rate cuts would have on the rand's high yielding status. The rand strengthened after the June cut.

"This time, however, the response may be different," Garrow said.

"International bond markets have responded adversely to expectations that the US economy may be in the midst of a fragile recovery."