How Nene’s ax­ing af­fects you

CityPress - - News -

Mo­ments af­ter the an­nounce­ment that Nh­lanhla Nene had been axed and would be re­placed by un­known David “Des” van Rooyen, the rand plum­meted and the like­li­hood is that the econ­omy will fol­low.

As the rand loi­ters around R16 to the dol­lar and at R25 to the pound, the im­pli­ca­tions for or­di­nary South Africans are dire as we ex­pect the cost of ba­sic goods to rise, and for in­ter­est rates to go up sooner rather than later.

Com­men­ta­tors this week have said that a weaker rand means that the costs of es­sen­tial im­ports such as oil and food will rise, re­sult­ing in the in­fla­tion rate break­ing the 6% tar­get range – putting pres­sure on the Re­serve Bank to hike in­ter­est rates, pos­si­bly as soon as next month.

Le­siba Mothata, chief econ­o­mist at In­vest­ment So­lu­tions, be­lieves that we could see an emer­gency meet­ing of the Mone­tary Pol­icy Com­mit­tee to hike rates “to stave off cur­rency-in­ducted in­fla­tion”.

Economist Peter Mon­talto of No­mura In­ter­na­tional went as far as pre­dict­ing an in­ter­est rate hike of be­tween 50 to 100 ba­sis points next month.

Apart from higher prices and in­ter­est rates, or­di­nary South Africans who are mem­bers of pen­sion funds will also be af­fected by the fall in share prices on the JSE and gov­ern­ment bonds.

The fi­nan­cial ser­vices sec­tor was es­pe­cially hard-hit as banks are more vul­ner­a­ble to steep in­creases in in­ter­est rates, with Stan­dard Bank and FNB fall­ing 17% and 21%, re­spec­tively.

With our econ­omy nar­rowly avoid­ing a re­ces­sion in the third quar­ter of this year, econ­o­mists now be­lieve that a re­ces­sion is un­avoid­able as the econ­omy strug­gles to ad­just to the price shock of the col­laps­ing rand and po­ten­tially higher in­ter­est rates.

– Staff re­porter

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