Absa expects 50bp rise, but warns could be 100bp

News > news - 11 Oct 2006
Absa expects the Monetary Policy Committee to increase rates by 50 basis points at its bi-monthly meeting on Wednesday and Thursday, but acknowledges the risk that the South African Reserve Bank (SARB) may have lost its patience with consumers, thereby tightening rates by 100 basis points in order to prevent a further deterioration in economic conditions and the inflation outlook.

The bank says in a media release that Reserve Bank governor Tito Mboweni has made a number of, what appears to be contradictory, comments over the last month, which make it difficult to determine the thinking at the SARB currently.

“He warned lenders and borrowers on several occasions regarding their appetite for lending and borrowing and repeated his warnings over the last few days when he said that the SARB still sees significant upside to the inflation outlook.

“He highlighted household consumer demand and the current account deficit as the major concerns while the recent rand weakness poses a further threat to the inflation outlook. Recent data on inflation, consumer credit demand, trade and Absa GER’s two-year inflation projections point to a 100bp rate hike on 11/12 October.”

“| However, early last week the Governor was quoted as saying that interest rates should be adjusted in an orderly fashion to ensure a soft landing for the economy. This
statement points to a gradual hike in rates over the next few quarters until the desired effect is observed.
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