/ 7 February 2009

Mboweni hints at early rates meeting

South Africa’s central bank monetary policy committee (MPC) could meet again on interest rates before its scheduled April meeting, depending on economic growth and other data, Governor Tito Mboweni said on Friday.

The MPC cut the central bank’s repo rate by 100 basis points on Thursday, the biggest adjustment in five years, and Mboweni hinted that he had wanted an even bigger reduction, raising expectations of more big cuts to come.

Inflation in Africa’s biggest economy is slowing sharply, while worries are mounting about growth.

Consumers are under strain from still high rates, with retail sales falling, new vehicle sales plunging and manufacturing — the economy’s second biggest sector — in recession.

”There is going to be data coming out towards the end of February and also mid-April, and if that data indicates that the MPC must meet, we might actually meet before the next scheduled meeting,” he said in an interview with CNBC Africa, referring to fourth-quarter economic growth data on February 24.

The economy expanded by just 0,2% in the third quarter of 2008, a decade low, and some economists have warned it may be heading for contraction.

”The problem is that some of the quarterly data was not available to us now … and if that quarterly data indicates a picture different to what we think will be the case, we might need to meet,” Mboweni said.

”I want to make it clear that the MPC can meet at any time when it feels like meeting because the world economy, and economic developments in general, do not wait for a particular date of the MPC.”

The next meeting is scheduled for April 15 and 16.

But Mboweni also said the fact that he had suggested the MPC consider a 200-basis-point cut did not necessarily mean consumers should expect a series of big adjustments.

”Nothing is prejudged,” he said.

While interest rates were high, the large differential between South Africa and other economies, like the US and Europe, was because of ”peculiarities” in the country.

”Personally I am of the view that interest rates in South Africa are very high,” Mboweni said.

”[But] my frustration is that no sooner have interest rates come down that South Africans go on a reckless spending binge instead of taking advantage of low interest rates to reduce debt.”

Mboweni added that he still believed the decision to raise interest rates by five percentage points between June 2006 and June 2008 to try tame inflation and then-robust spending had been correct, despite a re-weighting of inflation that will help it slow quickly in 2009.

Statistics South Africa introduces a new, targeted consumer price basket from the January survey that cuts the weighting for food, the main driver of faster inflation. — Reuters