No change expected in interest rates

All economists surveyed by I-Net Bridge expect no change in interest rates at the end of the two-day meeting of the South African Reserve Bank’s (SARB) monetary policy committee (MPC).

This is the 13th consecutive MPC meeting at which the majority of economists have forecast no cut in rates, but in August 2004 and April 2005, the SARB surprised the market by cutting rates by 50 basis points.

CPIX inflation (headline inflation excluding mortgage costs) has been below the midpoint of the SARB’s inflation target range of 3% to 6% year-on-year for 22 out of the past 27 releases.

The main reason for the no change in policy is the recent rise in the oil price, which should result in a rise in the retail petrol price in February.

In October, the MPC said the risks to the inflation outlook had increased due to the high and volatile international crude oil price and would not be ignored.

“The increased risk of possible pass-through leading to pronounced second-round effects on CPIX inflation must inform policy going forward,” the MPC said.

“Although there is no conclusive evidence of pass-through at present, and the monetary policy committee has not judged it necessary to change the monetary policy stance at this meeting, these developments will be closely monitored,” it added.

Food price inflation on an annual average basis was only 2,2% in 2005, compared with 2,3% in 2004 and 8,1% in 2003.

This helped the annual average CPIX to a record low of 3,9% in 2005 from 4,3% in 2004 and 6,8% in 2003. The CPIX has only been compiled since 1997.—I-Net Bridge

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