SARB to decide on interest rates

Posted On Tuesday, 12 March 2002 03:01 Published by
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The South African Reserve Bank's monetary policy committee starts a meeting on Wednesday which is expected to result in an announcement that interest rates are to be increased.
The South African Reserve Bank's monetary policy committee starts a meeting on Wednesday which is expected to result in an announcement that interest rates are to be increased.

Johannesburg - The South African Reserve Bank's monetary policy committee (MPC) starts its meeting on Wednesday which is expected to result in an announcement on Thursday that interest rates are to be increased.

An increase of one percentage point will, according to economists, be announced with a view to reaching the inflation targets in 2003. Finance Minister Trevor Manuel has already announced that the targets will not be reached this year.

The targets are based on the CPIX index for metropolitan and urban areas of between 3% and 6% for this year. Interest rates are excluded from the index. Predictions by the department are that an average CPIX rate of 6.9% for the whole 2002 can be expected.

The prime overdraft rate, the rate at which commercial banks lend money to their favourite clients, was raised by 1 percentage point to the present 14% in January. This was after the rate had been lowered to 13% in October. An increase in the prime rate is preceded by an increase in the repo rate, which is currently 10.5%. The repo rate is one of the interest rates at which the Reserve Bank lends money to commercial banks.

Reserve Bank Governor Tito Mboweni repeated before the Rand commission on Tuesday that reaching the inflation targets is the Reserve Bank's overall aim. Other factors, such as the money supply, credit extension by the private sector or the rand exchange rate are not directly targeted. But these factors also play a role in the ultimate inflation rate.

Growth in the money supply as well as credit extension by the private sector rose sharply in January, which according to economists was a direct response by consumers to buy goods before the rand falls further and allows inflation to rise.

Citadel chief investment officer Dave Mohr said at a presentation in Johannesburg on Tuesday the Reserve Bank should raise interest rates in order to avoid a further increase in local prices.

'Such an increase will be a clear signal that the Reserve Bank is serious about reaching the inflation target in 2003, and so also to ensure that inflation expectations do not increase.'

Mohr says there is a definite possibility that the weakening of the rand may lead to a new spiral of inflationary expectations. He feels the rand will continue to fluctuate in the foreseeable future. Reasons for this include the low economic growth rate and political instability in neighbouring countries
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Publisher: News24
Source: News24

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