ALAN FINLAY & Reuters, Johannesburg | Thursday 11.00am.
ANALYSTS have predicted that central bank’s Monetary Policy Committee, which meets on Thursday and Friday, is likely to maintain interest rates at the current level, but that a rates increase is likely later on in the year.
The repo rate has remained at 11,75% since January 14, when the MPC signalled it wanted rates to come down from a fixed 12%.
Commercial lending rates stand at around 14,50%, after falling last year from a peak of 25,5% as a result of the global emerging markets crisis.
April’s worse that expected inflation figures, the weaker rand and steep oil prices have prompted fears that a rates hike is on the cards. Tuesday’s 50 basis points increase in the US interest rate, which strengthened the dollar and drove down international markets, also fueled expectations that a hike may be necessary to help calm inflation.
Investec told the Business Report it expects the prime rate to climb to 15% in August, followed by another 50 basis point jump in November.
PSG Investment Bank, said the Reserve Bank needs to act 12 to 18 months in advance to restrain inflation to between 3% and 6% by 2002.
At the same time a monthly Merrill Lynch poll has indicated that fund managers have downgraded growth forecasts for the economy, but believe the rand still has some strength in it and have turned postive on government bonds.
The May survey, published on Wednesday, show that a net balance of 60% believed that the equity market is undervalued compared with 40% the previous month.
However, there are fewer buyers of domestic equities, with the balance dropping from 32% to 16%. At the same time they were no longer sellers of domestic bonds, suggesting that they were preparing for further weakness in the economy.