Interest rates should drop by three percentage points by the end of the first quarter of 2004, Sanlam Investment Management chief economist Jac Laubscher said on Wednesday.
Laubscher said the interest rate would likely decrease by 100 basis points in June next year and another percentage point in November the same year. The last cut would probably come at the end of the first quarter of 2004.
”I can’t see why it is necessary for another interest rate hike,” Laubscher told a press conference in Johannesburg, adding that the inflation would probably remain stable until the first of the expected cuts.
”If inflation is low and stable, you expect the interest rate to be low.”
Laubscher, who was speaking at the presentation of Sanlam’s third quarter overview and economic outlook, said he agreed with the inflation targets Finance Minister Trevor Manuel announced in his Medium Term Budget Policy Statement last month. In terms of the revised figure, Manuel raised the upper level of the 2004 inflation target by one percentage point, to six percent.
The targets for 2002 and 2003 of between three and six percent would remain unchanged.
Manuel said the CPIX — inflation excluding mortgage bond rates — was expected to drop to an average 9,6% this year, 7,2% next year and 5,5% in 2004.
Laubscher added: ”That’s credible. I think the target is on for 2004. The markets did not react bad to it.”
The CPIX is used by the SA Reserve Bank to determine its inflation target. – Sapa