Will there be a change in inflation policy?

By Staff Writer

The latest CPI, or Consumer Price Index, figures are out on Tuesday the 15th of December 2009. Inflation is in the Reserve Bank's target band of 3 to 6 percent at the moment, but just barely. There is some concern that the inflation rate may have broken out of the target range again. Under the current inflation targeting policies, interest rates would be raised to force inflation down. The new Guv, Gill Marcus at the Reserve Bank, will need to look at the inflation figures at the next meeting of the MPC in January 2010. So what can we expect?

 

  • The MPC is closed for the holidays
  • Government has been giving no change signals
  • Could we be in for a rate rise?

 

If there is no change in policy, and the inflation rate rises, then the ordinary response of the MPC would be to raise the interest rate. The REPO rate currently sits at 7%, this is the rate at which the Reserve Bank lends to the commercial banks, the commercial banks then lend to consumers at the Prime rate which is currently 10.5%. These rates determine how much you have to pay interest on any credit that you may have, like your credit card, or your homeloan. A small change in the interest rate can cost or save you a whole lot of money, which is why interest rates become so important.

There appears to be no change in policy outlook from the Reserve Bank, and the MPC won't meet until the end of January. If inflation figures rise then at least the MPC will have the December January shopping frenzy figures to factor into any decision that they may take. The shopping frenzy is coming, so plan a budget and stick to it, if the inflation figures come out bad, you don't want to pay any more on your credit than you have to. A rate rise may be a real possibility early next year and if you can avoid starting the New Year with debt trouble you should.

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