President Thabo Mbeki signalled his support on Tuesday for another interest rate cut, saying: ”Cheaper money would be good for the economy.”
His remark came after Statistics SA (Stats SA) reported that year-on-year consumer price inflation less mortgage costs (CPIX) sunk to 6,4% last month from 7,7% in May.
Emphasising that he had no say over monetary policy decisions, Mbeki said in Pretoria he was certain the SA Reserve Bank was sensitive about the impact of high interest rates.
Central bank governor Tito Mboweni and Finance Minister Trevor Manuel talked to each other about such matters.
”No doubt, from the point of view of the government, the minister of finance will communicate the message that we do need cheaper capital,” Mbeki told reporters.
”It is a very important part of what would help to increase the [economic] growth rate.”
Experts were optimistic about the odds of another interest rate reduction at next month’s meeting of the monetary policy committee (MPC) of the Reserve Bank.
”A better-then-expected CPIX for June … almost guarantees a rate cut of at least one percentage point in two weeks’ time,” said Investec economist John Stopford.
”We believe inflation may now fall below four percent by year-end and believe interest rates can be reduced by one percentage at each of the next three (MPC) meetings.”
Cubed Asset Management analyst Elaine van Heerden agreed June’s consumer inflation was lower than expected.
”The sharply lower CPIX inflation is supporting a rate cut at the next MPC.”
Van Heerden said the release of the latest producer price inflation data, scheduled for Wednesday (tomorrow), should see a further easing of inflationary pressures.
CPIX is the measure used by the Reserve Bank to determine its inflation targets, set at between three and six percent for this year and the next.
The latest figure is in line with central bank expectations that the CPIX could fall within its target range later this year.
The downward trend led the Reserve Bank last month to lower the rate at which it lends money to commercial banks, triggering a 1,5% cut in prime interest rates.
Stats SA cited annual increases in food prices as a major factor in the latest CPIX.
Other contributors were annual increases in the cost of housing excluding mortgage rates, medical care and health expenses, education, and personal care.
Stats SA said the consumer price index (CPI), known as headline inflation, stood at 6,7% last month from 7,8% in May.
Main contributors included annual increases in the cost of housing, food, medical care, and health expenses, and education.
The annual percentage change in food prices came to 8,6% last month compared to 11% in May.
This figure was mainly due to annual increases in the prices of meat, grain products, milk, cheese, eggs, and vegetables, Stats SA said. – Sapa