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Johannesburg - South Africans paying off debt can expect relief in the form of a probable 50 basis-point interest rate cut on Thursday, according to most economists polled by I-Net Bridge.
Reserve Bank governor Tito Mboweni will announce the Monetary Policy Committee's decision on interest rates shortly after 15:00.
Inflation data out in the past two days have supported the view that rates will be cut.
Thursday's producer price index (PPI) showed deflation of 3% in May 2009, compared to the same month last year. The drop in producer prices is largely as a result of lower energy and metals prices.
Economists reacted positively to the PPI deflation. Many commentators said the drop was "encouraging", while some added it should be viewed in context of fast growth in producer prices last year. Annual PPI inflation averaged 14.2% in 2008 - its highest level since 2002.
"PPI inflation came out much lower than expected," said Investec economist Annabel Bishop. "We continue to believe Sarb [the South African Reserve Bank] will cut interest rates by 50 basis points today and 50 basis points in August."
Wednesday's consumer price index (CPI) was 8% higher in May, compared to the same month last year.
"These data are still showing that the inflation profile is coming down," said Danalee van Dyk, economist at Standard Bank.
"It will definitely support the case for another interest rate cut on Thursday. We're expecting the rate to be cut by 50 basis points," she added.
One worrying trend emerging from the week's economic news has been the CPI's stickiness at relatively high levels.
"We should have seen inflation quite a bit lower," said Chris Hart, economist at Investment Solutions. "The ability to cut rates further will be very difficult."
Economists cited expected increases in energy prices later this year as a threat to declining inflation.
State power utility Eskom has requested a 34% increase in tariffs and will hear the National Energy Regulator's verdict on the matter on Thursday.
Oil prices will pose a further risk if they increase in tandem with a pick-up in world economic activity.
- Fin24.com