Mboweni sees inflation easing

South Africa’s inflation rate is expected to return to within the central bank’s target range in the third quarter of 2009, central bank Governor Tito Mboweni said on Thursday.

In a televised media conference after announcing a 50 basis point interest rate cut to 11,5%, Mboweni said the inflation outlook had improved, but risks remained.

He said he expected inflation to average 6,2% in 2009 and 5,6% in 2010.

Kgotso Radira, economist at Investec, said while the rate cut would provide a lot of relief for struggling consumers, it would not be sufficient to induce an increase in household consumption.

“This decision confirms our view that economic policy is now directed at averting a prolonged slowdown in the economy.

“More interest rate cuts are needed to stimulate consumption demand and economic growth going forward. We expect another cut at the next MPC meeting and it is likely that the SARB will cut by more than 50bp as targeted inflation falls rapidly.
We see interest rates being lower by more than 300bp next year.

Fanie Joubert, economist at Efficient Group, said they had expected the figure to be unchanged.

“Fifty basis points is not a major announcement, but it will give some positive sentiment to the market. At these levels though, it is not too significant, but for sentiment’s sake it is positive.”

Dennis Dykes, economist at Nedbank, said: “It’s in line with expectations. I think it’s the right decision given the fact that the economy is already under pressure at the moment and most of the inflation forces have subsided. It’s a justifiable decision” - Reuters, I-Net Bridge

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