Reserve Bank hikes interest rate
Lavinia Mahlangu
Posted Fri, 04 Aug 2006
Reserve Bank Governor Tito Mboweni announced the second consecutive repo rate hike of 50 basis points on Thursday, which saw the central bank's lending rate to commercial banks climbing to 8 percent.
The Bank's monetary policy committee (MPC) came to this decision following its meeting in Pretoria on Wednesday and Thursday, because of perceived threats to the inflation outlook and the volatile rand.
'Adjustment'
"The MPC remains concerned about the longer term threats to the inflation outlook, and has therefore decided that a further adjustment to the repo rate would be prudent," Mboweni said.
"Accordingly, the repo rate is increased by 50 basis points to 8 percent per annum with immediate effect."
In response, most commercial banks set their prime interest lending rate to 11.5 percent.
Inflation target range
"The exchange rate has exhibited considerable volatility, and fluctuated
between levels of around R6.70 and R7.50 to the US dollar since the June MPC meeting," Mboweni said.
"The behaviour of the rand was initially related to increased global risk aversion, combined with concerns relating to domestic balance of payments imbalances.
"The most recent central forecast of the Bank projects inflation to peak above the 6 percent level and to remain outside the target range for the first two quarters of 2007.
"Thereafter, based on the current assumptions, CPIX inflation is projected to decline slowly to reach a level marginally above 5 percent by the end of 2008."
He emphasised, however, that these projections were not used by the MPC as a basis for policy making.
Consumer Price Index
The CPIX (the consumer price index for metropolitan areas, excluding mortgage costs) increased at a year-on-year rate of 4.8 percent in June.
"This upward trend is not only attributable to petrol price
increases," Mboweni said. "If petrol prices were excluded, CPIX would have measured 3.5 percent and 3.8 percent in May and June respectively."
Mboweni said this was the highest rate of increase since June 2004, with food inflation prices having also made a significant contribution to the upward trend.
The country's targeted economic growth rate of 6 percent by 2010 did not seem to be threatened, although it had slowed since last year.
Consumer spending
"Preliminary indications are that economic growth, although still robust, continues to show some moderation compared to the 4.9 percent achieved in 2005, and consequently poses little threat to the inflation outlook," Mboweni said.
Despite the previous rise in the repo rate, consumer spending was up, with South Africans purchasing more cars and houses on credit and being prepared to pay more for them.
"Growth in credit extension to the private sector reflects the growth in
consumer expenditure and higher property prices. Growth over twelve months in total loans and advances accelerated from 22.5 percent in May 2006 to 23.2 percent in June," Mboweni said.
Source: BuaNews
| 
