IEASA National - News

Risk heightens for one percent interest rate rise   Article Date :9 Oct 2006 Risk of the Reserve Bank increasing interest rates at its next meeting on October 11/12 Based on a string of current economic factors there is a definite increased risk of the Reserve Bank increasing interest rates by more than 50 basis points at its next meeting on October 11/12, according to Absa. Absa’s forecast comes in the wake of an increase in both consumer inflation and producer price inflation for July along with further rises in credit extension, mortgage advances and further widening in the country’s trade deficit. . Recent economic data, says Jacques du Toit, senior economist at Absa, are all negative in terms of interest rate levels being steadied by the Monetary Policy Committee. In his view the latest round of data replaces any lingering doubts of a hike in October and now begs the question of just how high the increase will be. However, Du Toit says judgement should be delayed until the end of September when the Reserve Bank will have access to quarterly figures in determining interest rate adjustments when it meets in October. Du Toit also expects a further upward adjustment at the Monetary Policy Committee’s last meeting of the year on December 6/7 and another small increase early next year, but this will depend on the desired effect being achieved by the earlier rate increases. Thereafter he foresees rates should remain stable for the rest of 2007. Absa expects the housing market to continue cooling down into 2007 with monthly house price growth slipping into single digits by this year’s end, but still weighing in with a year-on-year growth of 12 percent for 2006. Its projection is lower at around eight percent for 2007. Du Toit says South Africa’s house price growth is still relatively strong and in terms of global performance well placed in the top ten countries of highest price growth. Banks maintain their ready attitude to meet mortgage demand and this is reflected by the continuing surge in mortgage advances for July, which Du Toit believes is a reflection more on consumers taking advantage of the still relatively cheap credit from mortgages for purposes other than housing. CLICK HERE TO RETURN TO THE MAIN NEWS PAGE