Interest rate rises

By Staff Writer


From Fin 24, 11 October, 2007


By Ana Monteiro

The South African Reserve Bank's monetary policy committee has increased interest rates by half a percentage point for the seventh time since June 2006.

The committee's decision takes the total increase in the repurchase or "repo" rate - the rate at which banks lend money to each other - to 350 basis points since the rate-tightening cycle began.

The prime lending rate - the rate at which banks lend to consumers - has now increased to 14%, its highest level since September 2003.

Unlike previous meetings where consensus forecasts pointed to rates increases, economists were divided on what the committee would decide: in a Reuters poll of 19 economists, 12 expected interest rates would be kept steady, while the remainder expected another 50 basis-point increase due to inflation pressures.

Consensus from a Bloomberg poll of 28 economists was similar, with 16 economists expecting rates to stay put and 12 expecting an increase.

Despite being lower in August, consumer price inflation excluding mortgage rates (CPIX, which the Reserve Bank targets) has remained above the 6% upper end of the target range for five months, coming in at 6.3% in August.

Earlier in the week, the Congress of South African Trade Unions (Cosatu) called on the Reserve Bank not to increase rates any further, saying the policy of raising rates had had "a disastrous impact" on South Africans.

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