September Rates watch – Our Predictions

“Rock and a hard place” and “Devil and the deep blue see” oh and “Out of the frying pan into the fire”. All of these cliches can accurately be used to describe the MPC’s current and, frankly, future position. I don’t envy them one bit…okay maybe a little: their salaries are probably fairly tasty.

Anyway, our prediction is that the MPC will make the decision it has made for the last 14 months: no move at all. They will continue to keep the repo rate at its current 40 year low.

Primelending1958onKeeping the rate stable may seem like a ‘do nothing’ or ‘wait and see attitude’ but continued stability in at least one of its facets is probably exactly what the economy needs in these trying times.

Barring significant changes in the global and local economic indicators the rate is unlikely to change until early to mid-2014 when most economists predict the first of two increases to the rate for a total rise of 100 basis points (or 1% to you and me) in 2014.

Why wait? An increase to the rate might nudge inflation, which stands at 6.4%, back down toward the upper end of the 3-6% target band and encourage savings.  But it’d also place pressure on those reliant on credit to do business or, like most home owners, just to live.

While certainly not the only factor to impact the MPC’s decision it is worth keeping an eye on the CPI: if it accelerates beyond 6.5% before the end of 2013 expect an increase to the repo rate sooner rather than later.

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