Real Estate News - South Africa's interest rates are expected to remain steady

JOHANNESBURG (Reuters) - South Africa's interest rates are expected to remain steady throughout 2006 although factors like wage demands could push inflation higher, one of the country's leading asset managers said on Wednesday.

A benign inflation environment and strong local currency has fuelled speculation that the Reserve Bank may cut interest rates this year, as the government tries to spur growth in a bid to create jobs and ease widespread poverty.

But STANLIB economist Kevin Lings said price pressures in the economy could nudge inflation closer to the upper end of its official 3-6 percent target range, staying the bank's hand.

The targeted CPIX inflation measure rose by an annual rate of 3.7 percent in November.

"Wages will increase by 6 to 7 percent (this year). That has an automatic upward bias on inflation," Lings said in a quarterly economic briefing.

Consumer spending was also likely to ease, although it would remain buoyant, he said.

"The last time confidence was this high was when we won the (2010 Soccer) World Cup bid," Lings added.

Domestic demand against the backdrop of low interest rates has been the main driver of a boom in the continent's economy over the past couple of years, and has been cited by the Reserve Bank as a possible threat to inflation.

Figures released on Wednesday supported predictions that interest rates will stay unchanged next month at the Reserve Bank's first Monetary Policy Committee meeting of 2006.

Retail sales -- the chief indicator of consumer demand -- rose 7.7 percent year-on-year in October in real terms, quickening from an upwardly revised 5.0 percent in September.

The central bank's repo rate has been steadily lowered by 6.5 percentage points to 7 percent between 2003 and 2005, bringing it to the lowest level in over two decades.

Lings also said fears of a slowdown in the red-hot property market seen during the last few years may also be overdone as investment in non-residential real estate catches up with home sales.

The value of approved non-residential building plans nearly tripled between 2003 and 2005, he said.

STANLIB is South Africa's third biggest asset management group and is jointly owned by Standard Bank and insurer Liberty Group.

Article from: http://za.today.reuters.com