Mboweni likely to announce fourth interest rate cut

Posted On Monday, 13 October 2003 02:00 Published by
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Johannesburg - Tito Mboweni, the Reserve Bank governor, is likely to announce the fourth interest rate cut this year after the conclusion of the two-day monetary policy committee (MPC) meeting on Thursday.

October 13, 2003

By Vernon Wessels

Johannesburg - Tito Mboweni, the Reserve Bank governor, is likely to announce the fourth interest rate cut this year after the conclusion of the two-day monetary policy committee (MPC) meeting on Thursday.

Expectations vary between a cut of 1 percentage point and 1.5 percentages points, following cuts totalling 3.5 percentage points so far this year.

A cut of 1 percentage point will bring the repo rate - the rate at which the Reserve Bank lends to commercial banks - to 9 percent, which means the prime lending rate will fall to 12.5 percent.

The case for a more aggressive rate cut is being boosted by the strong rand, which has gained not only against the dollar since the previous MPC meeting last month but also against the euro, sterling and yen, albeit to a smaller degree.

The rand has gained about 3.5 percent on a trade weighted basis since the surprise MPC meeting on September 10, when rates were dropped 1 percent, boosting the prospects of lower inflation.

"Looking beyond [this meeting], the market is pricing in at least another 1 percentage point's worth of interest rate cuts after October," said Marisa Fassler of JPMorgan.  


"This is in line with the JPMorgan view that the Reserve Bank will have scope to cut rates as long as the rand remains strong and capacity utilisation low."

"The fact that manufacturing production was much weaker than expected in August is one reason why the market is pricing in a rate cut larger than 1 percentage point," Fassler said.

The 1.5 percentage point cut in June was an exception driven by a bungle with the consumer inflation data by Statistics SA, which forced it to lower its inflation statistics by 2 percentage points, she pointed out.

Peter Worthington, an economist at Credit Suisse First Boston, anticipated a "wait and see" approach from the central bank because of inflationary risk.

"We see one more cut [of 1 percentage point] this year and maybe another 50 basis points in early 2004," he said.


Publisher: Business Report
Source: Business Report

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