Borrowing costs are important to most consumers and businesspeople in SA. Whether the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) raises rates again at its meeting this week is therefore of significance to the economy. Decisions by business and consumers will be influenced by what will be decided soon about interest rates here and abroad, even if the rise is small, and given other economic pressures. What is the outlook?
Prof Raymond Parsons
Following the latest robust jobs data there, a strong consensus is emerging that US interest rates may now eventually be poised to rise by 25 basis points at the next Federal Reserve meeting on December 16. The risk is that even a tiny rise in US interest rates can suck capital from emerging markets like SA, knocking currencies and share prices. Indeed, just the prospect of US interest rates rising next month has already strengthened the dollar and weakened the rand, but there has been some currency ‘overshooting’.
Yet the task of the SARB is to assess the balance of risks between inflation and growth and to make a judgement call on interest rates at each MPC meeting. The MPC faces this policy dilemma constantly as it navigates in an uncertain and volatile world economy. While at its September meeting the MPC saw the risks as more or less evenly balanced and thus left interest rates unchanged, this is no longer appears the case. The risks now look more asymmetrical, with output in several sectors struggling to remain in positive territory. More…
Yesterday we heard the wonderful news that three colleagues in the School of Economics have been promoted!
Mrs. Anmar Pretorius is soon to be Dr. Pretorius and has been promoted to senior lecturer. Henri Bezuidenhout and Chris van Heerden are now associate Professors.
All this is the result of a lot of hard work. Students typically see the lecturer in class, but behind the scenes they are also supervising post-grads, acting as examiners and moderators, reviewing papers for academic journals, doing their own research, presenting conference papers and trying to publish articles while doing committee work, commercializing expertise and reaching out to their communities.
Congratulations to all.
The MTBPS may be called a ‘mini- budget’ but it carried a major message: SA is in a low growth trap and until this changes, the government will have ‘to cut its coat according to its cloth’. Growth rates of 1.5% are simply too inadequate to sustain the socio-economic demands made upon them, as the widespread protests about university fees again confirm. The NDP interim growth target of 5% by 2019 is now well beyond reach. The MTPBS may have outlined the economic challenges facing SA realistically but message may not have been bold enough to meet them.
Prof Raymond Parsons
Although all roads to a better economic performance, employment and increased tax revenues lead through a much higher growth rates, this will now depend heavily on the actions of other Cabinet Ministers, and not just on the National Treasury. Decisions on issues like the investment bill, visa requirements and land reform undermine the policy coherence which Finance Minister Nene pleaded for in the MTBPS. Minister Nene cannot guarantee the future performance of his Cabinet colleagues, but this coordination in policy remains imperative.
Although on the face of it the MTBPS projects government spending limits and debt ratios which may hold the credit rating agencies at bay for awhile longer, SA’s public finances are not yet out of the woods. The economy as a whole remains fragile given external and internal pressures, which keeps the projections in the MTBPS vulnerable. The dangers of a debt trap or higher taxes still exist. Only a collective commitment to urgently and visibly implement the overall National Development Plan in a coherent and coordinated way will build the necessary confidence to create a bigger, stronger and better economy.
Prof Raymond Parsons of North West University Business School
It is a busy week in the School and yesterday we hosted Dr Johan van den Heever of the SA Reserve Bank.
Johan gave an interesting talk on inflation and hyperinflation. He explained that inflation is a monetary phenomenon – other forces may start a hyperinflation episode, but it is money creation that fuels it. He explained episodes of government-driven hyperinflation, cases where it was caused by giving credit to parastatals and banking-sector driven hyperinflation.
The recent example of hyperinflation in Zimbabwe (and the 50 billion Zim dollar note that he bought along) made the point very clearly.