Johannesburg - Interest rates should remain unchanged next week, marking the end of a monetary tightening cycle that has hit consumers and dampened growth.
The central bank has lifted the repo rate 10 times since
June 2006 - by 50 basis points each time - to 12 percent to
try to bring inflation under control.
The targeted CPIX is widely seen peaking in the next few
months after surging to a record 11.6 percent year-on-year in
June - way above the 3 to 6 percent target. It is then expected
to slow markedly in 2009.
Nineteen of 26 economists polled by Reuters this week saw
the central bank's policy committee leaving rates unchanged
after its two-day meeting on August 14, while seven are predicting another half percentage point increase.
All, except one, believe the next move will be a cut, with
the consensus looking for it to be delivered sometime in 2009.
"The consumption indicators are well on their way down and
we should step back and wait for them to catch up," Brait
Merchant Bank economist Colen Garrow said.
"We must be patient," he said, adding that a re-weighting of
the consumer inflation basket next year should help to bring
down the measure.
Consumer spending has cooled sharply in response to past
hikes, with new vehicle and retail sales falling. The housing
market is also under strain as higher borrowing costs slash
household budgets, leading to falling prices.
Central bank officials have not given many clues ahead of
next week's policy meeting, in contrast to hawkish comments from Governor Tito Mboweni before rate rises at previous gatherings this year - suggesting a close call.
Mboweni will announce the decision at 15:00 on August 14.
Rate cuts
The seven-member committee will have to weigh up the plight
of consumers and signs of slowing economic growth, against
broad-based price pressures that have pushed up wage demands.
A 27.5% jump in electricity prices to help Eskom meet rising costs will keep CPIX accelerating for now.
However, a better inflation outlook may tilt the MPC towards
ending the upward cycle, shifting towards cuts in 2009.
Fuel costs - with food, one of the main drivers of faster
inflation - declined for the first time in August and are
likely to fall sharply in September given lower crude oil prices and a firmer rand.
The poll showed 23 economists expect rates to start coming
down next year, with one seeing the fall only in 2010 and
another forecasting relief before the end of this year.
The central bank is also under political pressure to stop
raising rates, although Mboweni has shrugged off previous
criticism.
Cosatu held a national strike on Wednesday to protest the electricity tariff increase, and called for easier monetary and fiscal policy.
But some warn that risks remain and more increases are still
on the table.
"With negative record low real interest rates, we see room
for the SARB to hike without unduly affecting the real economy
overall," Peter Attard Montalto, emerging markets analyst at
Lehman Brothers.
"In the end ... the scale of the second round effects, given
the Eskom tariff increases, will tip the balance on the MPC (to
a hike)," he said, before forecasting another rate rise in
October.
- Reuters