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Repo rate increase

Posted On Tuesday, 15 January 2002 03:01 Published by
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Interest rates are to go up by one percentage point from tomorrow. In a statement this morning, Tito Mboweni, Governor of the SA Reserve Bank,
Interest rates are to go up by one percentage point from tomorrow. In a statement this morning, Tito Mboweni, Governor of the SA Reserve Bank, said the Monetary Policy Committee decided to increase the repo rate to 10,5% 'to counter second round effects of the (rand's) depreciation on inflation.'

This will bring the prime overdraft rate to 14%.

According to the statement the steep depreciation of the rand has altered inflationary expectations in South Africa which endangers the attainment of the inflation targets.

The full statement reads:

'A special meeting was called today of the newly constituted Monetary Policy Committee to discuss the appropriate monetary policy stance in view of the effects of recent economic developments on the outlook for inflation. The steep depreciation of the rand has altered inflationary expectations in South Africa which endangers the attainment of the inflation targets.

'To counter second round effects of the depreciation on inflation, the Monetary Policy Committee decided to increase the repo rate by 1 percentage point to 10,50 per cent with effect from 16 January 2002. It is envisaged that this decision will lead to corresponding increases in the lending rates of domestic private banks.

'This decision should not have a material effect on domestic economic activity because of the stimulatory impact of the currency depreciation during the second half of 2001.'

The repo rate was last changed on 21 September 2001, when it was reduced from 10% to 9,5%.

The rand lost as much as 40% against the dollar last year, with most of the losses seen in December when it plumetted to a record low of R13.85/$. The currency was last traded at around R11.53/$.

Colen Garrow of Brait said the move exacerbates stagflation the South African economy is facing.

'Economic activity is likely to decline, while inflation may not necessarily respond favourably to the hike in interest rates by reason that the influences driving price pressure higher are generally exogenous and not driven by endogenous influences, like more robust consumer activity.'

Click here for Garrow's full reaction.

For more click here.

Publisher: Moneymax
Source: Moneymax
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