Nedbank expects the prime rate to increase by 200 basis points to 13,5% in 2004, with the first 100 basis points hike expected in August followed by another of a similar margin in December.
However, the key uncertainty remains the rand, the bank’s economic unit says. It points out that continued strength could delay the timing and reduce the magnitude of the rise in rates.
According to the unit, the latest vehicle sales figures, which showed a surge in sales of passenger and commercial vehicles of 18,8% and 23,1% respectively in March, confirm both the strength of domestic spending and the growing demand for credit. The consumption and credit booms were cited by the South African Reserve Bank as one of the major threats to future inflation.
“This, coupled with concerns over the impact of rising food prices, higher international commodity prices and the growing mismatch between wage growth and productivity gains will convince the monetary policy committee to adopt a stricter monetary policy stance later in the year,” Nedbank predicts.
CPIX inflation, it says, is forecast to break through the 6% upper limit of the target range in the second half of the year, prompting the Reserve Bank to hike interest rates.
“We therefore expect the prime rate to increase by 200 basis points to 13,5% in 2004, with the first 100 basis points hike expected in August followed by another of a similar margin in December,” it adds.
“The key uncertainty remains the rand, however. Continued strength could delay the timing and reduce the magnitude of the rise in rates.”
On the outlook for new vehicle sales, it says these are expected to accelerate further in 2004.
“Strong consumer demand, boosted by rising real incomes and low financing costs, should support sales of both passenger and light commercial vehicles. Demand for medium and heavy commercial vehicles should also remain relatively healthy, supported by relatively firm levels of fixed investment activity.” — I-Net Bridge