The Reserve Bank's decision to increase the repo rate by only 0.5% to 12% in June caused the yields of money market instruments to decline as an increase of 1% was already priced into market rates. Large increases in fuel and other energy costs will continue to drive inflation higher with a likely peak of 13% in CPIX in the third quarter.

CPIX increased in May to 10.9% year-on-year from 10.4% as food and transport costs continued to rise. The large increase in fuel costs in June and July and the massive jump in electricity costs in July will push inflation higher over the next three months. Retailers are forced to pass on costs despite tight trading conditions.

Gross domestic product (GDP) slowed to 2.1% quarter-on-quarter in Q1 2008 as exports declined significantly due to the electricity crisis. The strong growth in gross fixed capital formation has increased GDP growth by 1.5% year-on-year.

Private credit sector credit grew by 19.7% year-on-year in May as mortgage advances slowed further to 20.6% year-on-year. The downward trend in credit growth is firmly established and the sharp slowdown in property transactions confirms this.