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Economy
Thursday, December 1, 2005
Avoiding shocks

It is not a foregone conclusion that the Reserve Bank will raise rates in December, although the risk of higher rates sometime over the next 12 months has increased, says Old Mutual Asset Managers (OMAM) economist Johann Els.

He now expects inflation to peak at 5,2% in February, revised down from his previous forecast of 5,8%, determined immediately in the wake of Hurricane Katrina.
“The outlook for inflation looks much better,” he says, “and this will have a positive impact on interest rate decisions.”
Mr Els says recent comments made by Reserve Bank Governor Tito Mboweni and Finance Minister Trevor Manuel show the authorities continue to be concerned about the second-round inflation effects of oil and that means the central bank will raise interest rates if it sees any sign of these coming through; or any deterioration in any of the key cyclical drivers of inflation, namely the rand, oil prices or food inflation.
OMAM chief economist Rian le Roux says the December interest rate decision will depend on the level of the rand and oil price at the time of the Monetary Policy Committee meeting. According to Mr Els’ forecast, the committee will be making its decision based on an October inflation figure of about 4.6% - close to the middle point of the target range.
Says Mr Le Roux, “Manuel’s comments on inflation show that they are concerned about what happened in 1998 and would rather raise rates pre-emptively than hike rates more steeply later on. I think that is the right thing to do, should available evidence point to further upside risks to the inflation outlook.”
 

Copyright © Insurance Times and Investments® Vol:18.6 1st December, 2005
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