STANLIB's Weekly Focus 07 July 2008

EXECUTIVE SUMMARY OF STANLIB’s WEEKLY FOCUS

ECONOMIC WEEKLY REVIEW

· Last week the European Central Bank (ECB) hiked their key policy interest rate by 25bps to 4.25%; taking the interest rate differential between the US and EMU (European Monetary Union) to 2.25%. The hike was widely anticipated by the market due to heightened inflationary pressures; however the ECB president Jean Claude Trichet later suggested that the hike may have been a one-time event, placing pressure on the Euro and equity market.

· The Reserve Bank of Australia left their benchmark interest rate at 7.25%; however the Bank of England will have a tough task this week as inflation rises and growth remains under pressure.

· Locally, although our trade deficit recorded a welcome, but not unexpected, improvement in May at -R1.66bn; other data released would argue for our interest rates to remain on hold. The SA manufacturing index (PMI) weakened significantly in June, with our manufacturers struggling to maintain top-line growth while also experiencing margin pressure. Vehicle sales were also under substantial pressure in June, especially passenger and light-commercial vehicles, with car sales now down 19% in the first six months of 2008!

· Clearly the real economy is responding to the higher interest rates, and inflation will be reduced next year by the recent weighting changes in the CPIX basket, hence the August MPC meeting is now becoming a bit more difficult to call.

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