The chances of an interest rate cut this week are rising, even though most analysts expect the Reserve Bank to hold its fire after lowering rates by five percentage points since December, writes Mariam Isa.

Markets are likely to remain in suspense until the decision is made tomorrow, with inflation figures hours ahead of the event set to determine the outcome.

Double-digit pay hikes and a 31 percent rise in electricity tariffs this year will put upward pressure on inflation in coming months, and militate against a rate cut.

But sustained rand strength, with the unit scaling a new 13 month peak of R7.29/ last week, will help mute inflation by reducing the cost of imports. The currency is also far too strong for SA's bruised manufacturing sector, which was hit hardest by global and domestic downturn.

Rand Merchant Bank economist Carmen Nel said: "We think the Bank will keep the repo rate unchanged at seven percent, but admit that a positive (inflation) surprise could be what is needed to tip the Bank towards another rate cut in an attempt to stem rand strength."

The Bank's monetary policy committee will know by how much the consumer price index rose last month when its meeting starts today.

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