Why our repo rate should come down

The Star Early Edition - - OPINION&ANALYSIS - Ni­cola Maw­son Ni­cola Maw­son is the on­line editor of Busi­ness Re­port. Fol­low her on Twit­ter @Ni­co­laMaw­son or Busi­ness Re­port @bus­rep

THE DAY af­ter South African Re­serve Bank gov­er­nor Le­setja Kganyago an­nounced the repo rate would re­main at 7 per­cent – and by im­pli­ca­tion the prime lend­ing rate at 10.25 per­cent – an­other com­men­tary press re­lease landed in my in­box.

This was on top of the ones that, clearly, were pre-writ­ten as they landed within min­utes of the gov­er­nor open­ing the floor.

This re­lease, how­ever, stayed in my head be­cause the sub­ject line in­di­cated that the Mon­e­tary Pol­icy Com­mit­tee’s de­ci­sion to hold rates pro­vided some re­lief to con­sumers af­ter the fes­tive sea­son.

As we all know, the fes­tive sea­son and back-to-school pe­ri­ods are gen­er­ally not easy on the pock­ets. How­ever, if what re­tail­ers were telling jour­nal­ists af­ter the fes­tive frenzy is any­thing to go by, this hol­i­day sea­son was any­thing but merry for them, as it seems most con­sumers se­ri­ously cut back on spend­ing. And that’s a trend I an­tic­i­pate will con­tinue for quite some time.

Peo­ple are sim­ply not shelling out on fancy din­ners and gifts; they’re down­siz­ing, purg­ing debt, and cut­ting out what­ever they can. This is hardly sur­pris­ing.

Econ­o­mist Ge­orge Glyn­nis tweeted, quite some years ago, that the in­fla­tion peo­ple feel in their pock­ets is likely dou­ble the of­fi­cial rate.

Of­fi­cially, the con­sumer price in­dex is at 6.8 per­cent. I can cer­tainly see what Glyn­nis meant ev­ery month when I go gro­cery shop­ping. And I’m sure that BankservAfrica’s lat­est fig­ures on aver­age salary in­creases will show that – in re­al­ity – many peo­ple are left with much less than what they had last year, when you fac­tor med­i­cal aid and other items such as food and petrol into the bas­ket.

Ac­cord­ing to the Na­tional Credit Reg­u­la­tor’s lat­est fig­ures – ad­mit­tedly from the sec­ond quar­ter of last year, but that’s what we have to work with – as many as 9.67 mil­lion peo­ple have im­paired credit records. And that’s out of the then 24 mil­lion credit ac­tive con­sumers. That’s more than a third of credit ac­tive con­sumers who have a black mark against their name.

In­fla­tion pusher

In­fla­tion is a big driver of this, be­cause each month’s bas­ket costs more, and we un­pack less. The good news is that, for now any­way, we may be near­ing the end of the rat­ing hike cy­cle. How­ever, Kganyago did warn that, if sec­ond-round ef­fects emerge that un­der­mine the long-term in­fla­tion out­look, this view might be re­assessed.

The Re­serve Bank’s in­fla­tion fore­cast has de­te­ri­o­rated since its last meet­ing, and in­fla­tion is now only ex­pected to re­turn to the tar­geted 3 to 6 per­cent range in the fi­nal quar­ter of this year. It’s also ex­pected to peak at 6.6 per­cent. That’s 13.2 per­cent ef­fec­tively for you and me.

So, I dis­agree with the de­ci­sion be­ing a re­lief for con­sumers. Some, like me, may have ex­pressed a sigh of re­lief, but it’s not re­lief in the true sense of the word. That will only hap­pen when rates come down, and when con­sumers and busi­nesses alike start putting money into the econ­omy. Yes, that may have the un­in­tended con­se­quence of ini­tially push­ing prices up thanks to the eco­nomic prin­ci­ple of sup­ply and de­mand. How­ever, it will also boost eco­nomic growth, which equals jobs.

I think the Re­serve Bank should take a con­trar­ian view and drop rates.

As al­ways, your views are wel­come.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.