Economists bet on pause in rates

This is according to a survey of 13 leading economists by I-Net Bridge. The MPC's decision on rates will be announced just after 15:00 on Thursday.

Of the 13 respondents surveyed, a majority of ten felt the repo would remain unchanged, with three predicting a 50 basis points increase.

Most respondents also felt the tightening cycle would be over, but that if another increase happened, then August's increase would mark the end of the cycle.

The MPC increased the repo rate by 50 basis points to 12.00% in June - against a consensus expectation that the increase would measure 100 basis points after particularly hawkish comments from the central bank governor on May 28.

With no increase now, the prime overdraft rate would remain at 15.5% and the current tightening cycle, which began in June 2006, at 500 basis points.

SARB governor Tito Mboweni noted in June that there are major inflationary pressures building up, with the electricity decision weighing heavily. He added that the MPC was mindful of the fact that the economy was responding to the tightening, but that risks to inflationary expectations have deteriorated further.

"The outlook for inflation remains bleak," he said, adding that the risk to the global and domestic economy is seen to be firmly on upside.

He added that price increases are now more broad based.

'Have to do our bit'

On August 5 in a speech to Wits business students he said monetary authorities are clearly very concerned about the fact that inflation in South Africa is outside the 6% to 3% target band.

He scotched talk that inflation targeting was not working and should be abandoned, emphasising that it garnered accountability in the management of the economy.

"All of us have to do our bit to bring inflation to within the target band in the medium term," said Mboweni.

Mboweni noted that the initial disappointment with inflation had expanded to include more generalised pressures.

"The core inflation rate is still above the upper limit of the inflation target," he said.

However, many commentators feel the inflation level is due to peak soon and that this will be a key consideration by the MPC, as to hike now may not have the desired effect if inflation does indeed peak and come down. Monetary policy operates with a lag to full impact in the economy of around six months.

The repo rose as high as 13.5% in September 2002, before receding to 7% in April 2005, with the current tightening cycle then beginning in June 2006.

After a December 2007 50 basis point hike, the MPC had paused in January.

- I-Net Bridge