Fast and Furious!

Things are beginning to happen quickly now...

The MPC (Monetary Policy Committee) have made a surprise move, to bring their next bi-monthly meeting forward from 11 February to 4&5 February 2009. This is where and when interest rate changes are decided. In December 2008, we saw the first rates cut after a long series of increases, reducing the Prime rateby 50 basis points, from 15.5% down to 15.0%

Why bring this next meeting forward by a week? Could it be that Trevor Manual's budget will be read on 11 Feb? Could it be that recent indicators and financial pressures are dictating a larger than normal rates cut, or that it should be implemented sooner than planned?

Liezel Slabert of Mamela Properties writes, "All the banks have to attend to present their past annual business at the Monetary Policy Committee Meeting in February.  The chances are very high that the financial institutions will have to grant more bonds in the entry level market (below R500 000), cut rates and reduce deposit rates.

I believe we should see a 100 point cut, possibly bringing Prime down to 14.0% and the Repo rate from 11.5% down to a possible 10.5% (though some experts, such as Gordon McKay, are predicting a 200 point cut in Feb! WOW!!!)

And this will not be the last rate cut of 2009, as all indicators are we should see further cuts until at least the end of 2009, with April 2009 also having the possibility of 100 points cut but then the tendency will return to the usual 50 points cut per session (every second month).

On Wednesday, Brazil which shares many traits with the SA economy, managed to cut a larger than expected 100 basis points 12,75% without a fall in the currency.

Most western countries are already in the low single digits range, with further downward pressure in place.

Inflation figures in SA are already falling dramatically and are set for further drops.

CPIX was 12.1% for Nov08 and 10.4% for Dec08. The expectation is that Jan09 could be as low as 7.1% and dropping to below 6% by May09.

Headline CPI is set to replace CPIX from Jan09 and is also showing a remarkable downward trend. The new basket changes the impact of food and uses a different means of calculating property's impact. It should be beneficial to how we perceive real inflation pressures in our economy.

These are exciting times! Things are happening fast and furiously now and will possibly pick up the pace even more in months to come.