15 January, 2011 23:30
2 Comments

RENÉ VOLLGRAAFF

Marcus likely to keep interest rates unchanged

Interest rates might be cut further this year, but the chances of Reserve Bank governor Gill Marcus announcing such a cut on Thursday are highly unlikely.

The bank's monetary policy committee (MPC) cut rates at its last two meetings, citing lower inflation expectations, but economists do not expect a similar announcement at the MPC's first meeting of the year.

"Considering how markets and economic data improved towards the end of last year, they will probably not cut rates again," said Dave Mohr, chief investment strategist at Citadel.

He said improved car sales figures for December and indications that retailers had a good Christmas period might support a decision to keep the repo rate unchanged at 5.5%.

Sales of new vehicles grew by 29.6% year on year in December, with sales for the whole of 2010 rising by 24.7% - following 2009's decline of 25.9%.

Manufacturing production data for November, published by Stats SA this week, also surpassed expectations after rising by 4.6% year on year compared to October's 2.3%.

Mohr said better-than-expected household consumption expenditure in the third quarter of last year also supported a hold on interest rates.

"By cutting rates further, while expenditure is already recovering so strongly, will create a risk of potentially higher inflation in a year's time."

Despite rising international oil and food prices creating a risk of higher consumer inflation, Mohr said inflation would not play a big role in the MPC's decision-making process.

But Mike Schüssler, an economist at Economists.co.za, said whereas December's year-on-year consumer inflation rate, which will be announced by Stats SA on Wednesday, might be a bit lower than November's 3.6%, inflation would now start to rise.

He expects inflation to climb to 5% by the middle of the year and breach the 6% upper limit of the inflation target by 2013.

"The next interest rate move will be upward, but that will probably not be before the end of the year," he said.

But Mohr said this was not necessarily the case.

"If the international economic recovery comes under suspicion, if there is any indication that it is not as strong as it was towards the end of last year, and with the rand staying strong, you cannot rule out a further cut," said Mohr.

Investec economist Annabel Bishop said a cut in the first quarter was possible, but it was more likely that rates would stay unchanged for the year with a first hike of 50 basis points early next year. She warned, however, that a big rise in consumer inflation would cause real interest rates to subside while inflation and demand was rising.

"Historically the MPC has always hiked in such circumstances," she said.

The rand's exchange rate was a major factor keeping inflation low in 2010. Most economists expect the currency to remain strong for at least six months.

Schüssler said it was possible that most of the rand's run had passed.

"Certain things will stay low in price," he said. "Car prices will not go up majorly and a lot of technology products will stay low, but that does not make up much of the inflation basket.

"Electricity prices will rise again this year, food prices will not decrease and commodity prices are rising."

COMMENTS

Hacker

jackasss Jan 16, 2011

THE SARB IS THE SINGLE LARGEST IMPEDIMENT TO ANY DECENT GROWTH

Hacker

Anonymouse123 Jan 16, 2011

Inflation, with the possible exception of rising oil prices (if you want to call that part of inflation), is really a hidden tax and not a natural phenomenon. It is the constant DEVALUATION of national currencies by well established banking cartels which leverage control over national governments. This gives the false appearance of goods being more expensive because the currency is worth less goods. Even goods in no way related to oil prices. ONE of their methods of devaluing currencies is by creating over supply of currency by overprinting notes (a.k.a. toilet paper). If this form of inflation (which is not oil related) really was a natural phenomenon like we get told, we would also have just as much deflation - as per the law of averages. We do not.

The bankers further financially enslave us with their economist's jargon WHICH DOESNT VARY THAT MUCH FROM ECONOMIST TO ECONOMIST. They tell us that they are unfortunately forced to lift interest rates to help "curb" the very inflation that they cause in the first place. They therefore get even more hidden tax from us. When the golden goose is almost dead, they quickly tell us that all those interest rate increases have started working and now inflation is under control, which it very well might be - SO WHAT ! So they then lower interest rates. Just as the golden goose starts laying more golden eggs again and starts recovering from their exploitation they then start the whole process again of causing inflation (tax) to go higher and higher until once again they have to lift interest rates. So we are caught in the trap going back and forth between high interest rates and inflation - BOTH JUST HIDDEN TAXES AND GIANT SCAMS OF THE BANKS. Stop using their paper money and trade with anything else you can lay your hands on that isn’t (toilet) paper money. We should encourage people to invest in gold and silver coins that arent subject to inflation. Trading in silver coins on a day to day basis would be even better, but not many traders accept silver coins. Even if saving for only a few years krugerands wont experience inflation.

Inflation from oil seems to be caused in a similiar way. Many not fooled by their propaganda have suggested that crude oil is not nearly running out geologically according to some studies, but simply that the supply is controlled by the miners (OPEC) and the refiners (middle men/oil companies, eg. BP, Shell, etc). This artificial limiting of the supply pushes up prices because the demand is still the same or higher. The inflated oil prices pushes up petrol and diesel, which in turn pushes up food prices and that of other goods that need to be transported. The answer for petrol car users - go electric. The answer for food prices - wait for supermarkets to go electric. Food price increases due to global warming's climatic conditions destroying crops is only a part of the story. Don’t be fooled !!!!!!
Currency inflation cause by banking manipulations are just as bad as oil manipulations and we should stop using their paper money and trade with anything else you can lay your hands on that isn’t (toilet) paper money. The last thing we should be encouraging out children to do is save paper money in the bank. Teach them top rather buy Krugerands.

SEE ALL COMMENTS

The Business LIVE Network

Hi 21C°

Low 3C°

Market Indicators

Breaking News

Sports Tracker