/ 23 May 2008

Chance of a 100-basis-point rate hike in June?

Global analysts Lehman Brothers wondered out loud on Friday morning whether some notably hawkish statements by Reserve Bank Governor Tito Mboweni on Thursday might be a signal that a rate hike of 100 basis points could be on the cards come June 12.

After analysing the speech, the analysts say there was an ”interesting reference” to taking unusual action, which they say is perhaps indicating a chance of a 100 basis point move.

”While he reiterated that price pressures were more generalised and that expectations were a concern, he did go further in some areas. He said that wages did not bode well for inflation, an interesting comment given the ArcelorMittal wage settlement earlier in the week.”

The National Union of Metalworkers of South Africa (Numsa) said on Monday that ArcelorMittal, the world’s largest steel producer, had agreed to a 12% wage increase across the board.

The trade union said that negotiators from both labour and the company’s management also agreed to consider the negative effects of the rising headline consumer price index (CPI), which shot up to 9,8% in February from 4,9% a year ago.

Numsa said next year’s wage increases would, as a result, be linked to CPIX plus 1% in anticipation of further rises in food prices.

Says Lehman: ”He also hinted at a change in view by stating that inflation should be brought down to target as soon as possible, which contrasts with his previous statement that it was unrealistic to bring inflation down in the short run and that the South African Reserve Bank should aim more at a longer horizon.”

South Africa’s CPIX inflation reading takes place on Wednesday next week, and another bad number well into double digits has led some analysts to go so far as to say an emergency monetary meeting could even be called before June 12.

Chief economist of Dynamic Wealth, Professor Chris Harmse, says he will not be surprised if an emergency Monetary Policy Committee (MPC) meeting is called on May 28 after CPIX inflation has been announced at worse-than-expected levels. He would not be surprised to see CPIX as high as 11%.

South Africa’s April CPIX data is due for release at 11.30am on Wednesday. Prior to the two most recent talks by Mboweni, it was inferred from an South African Broadcasting Corporation interview with him that an emergency meeting might be on the cards as inflation was getting out of control.

South Africa’s CPIX inflation would have broken through the upper 6% targeted ceiling for an unprecedented 13 months in April. ‒ I-Net Bridge