Analysts expect more rate cuts in 2009

With downside risks to economic activity now clearly outweighing upside risks to inflation, the South African Reserve Bank (SARB) will continue to cut rates through 2009, Moody’s said on Friday.

The analysts said the SARB’s decision to cut the repo rate for the first time in more than 3,5 years by 50 basis points to 11,5% on Thursday will likely mark the start of an aggressive easing campaign.

They said the moderation in domestic inflation and sharp slowdown in the pace of activity likely prompted the move, which occurred despite ongoing concerns about the weak rand.

“The Monetary Policy Committee’s [MPC] statement noted improvement in the inflation outlook since its October meeting. The bank now expects consumer price inflation to fall within the 3% to 6% target by the third quarter of 2009.

“While weak domestic demand and diminishing global price pressures have improved the medium-term inflation outlook, recent volatile exchange rate movements remain a major concern.

“The MPC cited the weak rand as a key upside risk to the inflation outlook.

Nevertheless, with downside risks to economic activity now clearly outweighing upside risks to inflation, the SARB will continue to cut through 2009,” the analysts said. — I-Net Bridge

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