Reserve Bank should adopt a wait-and-see style Reply

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

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…