Another rates cut possible

2012-07-06 00:00

SOUTH Africa could be in for an interest rate cut in less than two weeks.

FNB chief economist Dr Cees Bruggemans believes the possibility of a rate cut has increased significantly.

The SA Reserve Bank’s (SARB) monetary policy committee (MPC) will meet from July 17 to 19 and is due to announce its decision on the 19th.

With the Consumer Price Index (CPI) comfortably back below the MPC’s three to six percent target range and economic growth less robust than authorities would like it to be, the chances of a rate cut have heightened.

“With final demand growth easing and real monetary conditions not as easy as probably imagined, there remains scope for interest rate easing, provided the risk environment also plays along,” said Bruggemans.

Although the chief economist of the Efficient Group, Dawie Roodt, believes that interest rates should remain the same or actually be higher, he recently warned that monetary policy easing in Europe and elsewhere in the developed world could prompt the MPC to take similar action.

“Europe is in a mess and further monetary stimulus or more aggressive rescue efforts by the European Central Bank may be in the offing. The Fed [Federal Reserve in the U.S.] also faces a struggling economy and may eventually decide to add another dose of monetary stimulus.

“The result … will be similar to a further rate cut, and that may be the SARB’s valid excuse to cut local rates.”

Roodt said this was not advisable given that real interest rates had moved into negative territory following an easing of inflation in recent months.

Not all economists are betting on an interest rate cut on July 19.

Standard Bank economist Thabi Leoka said an easing of the rate cut would materialise in the event of an economic growth crisis, but she expected rates to remain unchanged until sometime next year.

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