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One percentage point cut seen
29/07/2003 21:56 - (SA)
Johannesburg - A better-than-expected CPIX for June almost guarantees a rate cut of at least one percentage point in two weeks time, says John Stopford, portfolio manager at Investec Asset Management.
Also supporting a further rate cut is South African Reserve Bank Governor Tito Mboweni's favourite measure of inflationary momentum, and the quarter on quarter seasonally adjusted and annualised rate of inflation.
CPIX for June, released on Tuesday, was down 0.3% month on month and up 6.4% year on year versus 7.7% last month.
Stopford said the main contributors to the good monthly number were, as expected, declines in food and petrol prices, but the fall in food prices was a little bigger than anticipated.
In addition, the impact of the strong rand fed through to moderate price declines across a broad range of items including vehicles, tobacco, footwear, household appliances and equipment and entertainment. Electricity prices also came down somewhat.
"As expected, a seasonal increase in medical costs and the regular rise in rental inflation limited the size of the monthly decline in CPIX."
Although there are calls for a bigger rate reduction, Investec Asset Management believes this is unlikely for three reasons.
"Firstly, the MPC are likely to exercise caution given recent high wage settlements, buoyant credit demand and signs of accelerating global growth.
"Secondly, the 1.5 percentage point reduction in the Repo rate in June reflected a once off downward revision to CPIX and expected inflation. Finally, the MPC now meets more
often and has time to take a more measured approach."
That said, Investec Asset Management believes that inflation may now fall below 4% by year-end and believes interest rates can be reduced by 1 percentage point at each of the next 3 meetings.
- I-Net Bridge (Business)
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