Re­newed fears

The econ­omy will re­main re­silient

Finweek English Edition - - Openers - GRETA STEYN

IN­TER­EST RATE FEARS HAVE flared up again as the out­look for in­fla­tion has wors­ened. But most economists say the econ­omy will take an­other 50 ba­sis point hike in the repo rate in its stride – if it hap­pens at all.

Bureau for Eco­nomic Re­search (BER) econ­o­mist Pi­eter Laub­scher says the BER had built an in­crease in in­ter­est rates in Fe­bru­ary into its growth fore­casts for this year. That didn’t hap­pen, as Re­serve Bank Gov­er­nor Tito Mboweni kept the repo rate un­changed at 9%. So, even if there’s an­other hike in the repo rate, the BER’s eco­nomic growth fore­casts will re­main un­changed, at 4,6% for the year.

“A hike in in­ter­est rates would be a good thing, as it would cool down the de­mand side of the econ­omy. This, in turn, would pre­vent the cur­rent ac­count deficit from widen­ing. The ef­fect would be bet­ter bal­ance in the econ­omy, with lit­tle neg­a­tive ef­fect,” Laub­scher says.

He says the BER’s sur­veys among sec­tors of the econ­omy such as re­tail sug­gest that there isn’t much of a slow­down yet in the econ­omy. But there seems to be some dis­agree­ment among economists about the ex­tent of the slow­down al­ready tak­ing place.

Stan­dard Bank econ­o­mist Goolam Bal­lim says ev­i­dence that a slow­down is gain­ing mo­men­tum is clear from a lever­age point of view. If one dis­sects the credit growth fig­ures, it be­comes clear that house­hold de­mand for mort­gages is slow­ing. Stan­dard Bank has also picked up a slow­down in the rate of new ap­pli­ca­tions for mort­gages. Bal­lim says this is an im­por­tant in­di­ca­tor, as house­holds use mort­gage credit to fi­nance con­sumer spend­ing. Fur­ther ev­i­dence comes from mo­tor ve­hi­cle sales.

Bal­lim says if in­ter­est rates are hiked, it will take place in an en­vi­ron­ment of re­duced dis­cre­tionary in­come for house­holds. The high fuel price, among oth­ers, will re­duce the money that con­sumers have in their wal­lets. An in­ter­est rate hike, to­gether with re­duced house­hold in­comes, could shave up to 0,3 per­cent­age points off the eco­nomic growth rate for the year.

Absa Cap­i­tal macroe­co­nomic strate­gist Monale Rat­soma says last year’s hikes in in­ter­est rates are fil­ter­ing through slowly. But one should bear in mind that in­ter­est rates work with a lag, and their ef­fects will be­come more pro­nounced.

He points out that the Na­tional Credit Act, which will reg­u­late the way banks grant credit, is likely to put a damper on credit growth when it comes into ef­fect later this year.

Rat­soma be­lieves the Re­serve Bank shouldn’t and won’t raise in­ter­est rates. So does Bal­lim and Rand Mer­chant Bank’s Et­ti­enne le Roux. Azar Jam­mine is in the camp that be­lieves rates should rise, but he says they may not, given that Gov­ern­ment seems in­tent on keep­ing the rand rel­a­tively weak.


Source: I-Net Bridge

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