Monetary Policy: Steep rate cut could be in the offing this week as Reserve Bank tries to revive ailing SA economy

2009-04-26 00:00

Johannesburg — While a repo rate cut of one percentage point on Thursday is practically a given, the SA Reserve Bank could surprise with 1,5 or even two percentage points.

A bigger cut may be justified by the faster rate of economic deterioration.

The consumer price index (CPI) data for March, released on Wednesday, will be key to the decision. If the CPI shows that the weakening economy has already started to suppress price increases, it could make the case for a bigger cut.

Economists expect that CPI will drop from 8,6% in February to around eight percent in March. The high base level of March last year will contribute to the sharp fall.

The local economy is reeling from a shock slump in manufacturing as well as widespread retrenchments, which is affecting the spending power of consumers.

Retail sales have contracted by 4,5% in the year to February, while manufacturing slumped by 15% and steel production by 36%. Cement sales dropped 10% in the year to March.


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