Interest rate comment ahead of SARB MPC from Rian le Roux, chief economist at OMIGSA

Although data releases over the past month have mostly been a little more favourable from the point of view of averting another interest rate hike, it has probably not improved enough to avert an October hike.

* Inflation data for both CPIX and PPI came out a little lower than expected in August, but both remain uncomfortably high at 6.3% and 9.4%, respectively.

* Consumer spending growth continued to slow, with car sales and retail sales evidence of this trend. Consumer credit extension, however, moved against this trend, recording a jump in the underlying three month annualised growth.

* However, a second consecutive R9bn-plus trade deficit in August was indicative of the still-strong local economy and a currency that probably is not competitive enough. The Reserve Bank will remain concerned with the continued large foreign trade deficits.

*The one factor that could possibly prevent a hike in interest rates is the fact that past interest rate rises have not yet been fully reflected in the real economy and more time is probably needed to see the full impact. However, we think chances are that we will see a further 50 basis point hike at the October meeting of the Reserve Bank's policy setting arm
OMIGSA view:
Although the interest rate hikes of the past year are starting to slow the economy, inflation pressures remain sufficiently strong and the foreign trade deficit sufficiently large for the Reserve Bank to raise rates again in October

*Looking forward, though, we remain confident that, in the absence of highly negative developments abroad, we are now at or close to the peak in the interest rate cycle.
OMIGSA view:
Rate cuts are unlikely before inflation is firmly back into the target range this may only be deep in 2008.