100 bps rate hike on the cards?

Global analysts Lehman Brothers wondered out loud on Friday morning whether some notably hawkish statements by central bank governor Tito Mboweni on Thursday might be a signal that a rate hike of 100 basis points could be on the cards come June 12.

After dissecting the speech, the analysts say there was an "interesting reference" in the middle to taking unusual action, which they say is perhaps indicating a chance of a 100 basis point move.

"While he reiterated that price pressures were more generalised and that expectations were a concern, he did go further in some areas. He said that wages did not bode well for inflation, an interesting comment given the ArcelorMittal wage settlement earlier in the week."

The National Union of Metalworkers of South Africa (Numsa) said on Monday that ArcelorMittal (ACL), the world's largest steel producer, had agreed to a 12% wage increase across the board.

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CathJ said:

Having more cash in the bank than debt, this is a good thing for me (although it's bad for me too, in the bigger scheme of things).

What I've wondered is, shouldn't the prime interest rate always be ahead of inflation? Currently, even on a large investment, the interest rate you get at the bank is only just ahead of inflation, so while you think you're making money on interest you actually aren't, in real terms. I don't know enough about economics and all that; wouldn't there be repercussions if prime was less than inflation? Doesn't that mean that they have to increase interest rates for that reason alone (apart from discouraging debt, and increasing foreign investment)?

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