Rates 'likely to be kept on hold'
Thu, 28 Aug 2008
With the short-term outlook for inflation likely to improve and the economy expected to weaken further, the SA Reserve Bank was likely to keep rates on hold for the rest of the year, Nedbank Group's economic unit said on Wednesday.
"We expect the first cut to come in April 2009 – however, once the interest rate cycle turns, rates are often cut much faster and by more than the market expects, particularly when the economy is showing signs of stress," Nedbank said.
The bank's comments came after the release of inflation data for July.
Earlier Statistics SA said that CPIX inflation, which excludes mortgage costs, rose to a record 13 percent in July from 11.6 percent in June.
However, July's inflation data did not come as a surprise.
"July's bad inflation number was widely anticipated, with the Reserve Bank itself expecting inflation to peak at 13 percent in the third quarter," Nedbank said.
It added that July was likely to have been the peak in inflation.
The oil price had since stabilised at around $115 a barrel and concerns about global growth and its impact on demand as well as the stronger dollar had made oil a less attractive investment option.
International food prices had also peaked and fallen back to levels seen at the end of last year, Nedbank said.
It expected the rand to depreciate only "modestly" – mainly due to the strength of the dollar.
"However, given the recent volatility of the rand and the oil price, there remains a risk that the current positive trends could reverse," Nedbank said.
Sapa
