‘We do not want higher interest rates to become a tipping point for recession’ Reply

Commenting on the decision by the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) to raise interest rates by a further 50 basis points today Professor Raymond Parsons, of the NWU School of Business and Governance says:

Raymond Parsons

Prof Raymond Parsons

‘The expected further rise of 50 basis points announced by the SARB today, together with the Bank’s sober economic analysis, sends a worrisome message about SA’s economic prospects. Whilst recognizing the acute policy dilemma faced by the SARB of weighing higher inflation against weaker growth, a rising interest rate cycle nevertheless will inevitably come at a cost in growth and jobs. The inflationary concerns which have driven the SARB’s latest decision will not prevent these negative outcomes.

As the SARB itself acknowledges, inflation in SA is cost-induced, not driven by excess demand. It is therefore the consequence of forces not responsive to interest rate discipline. Much higher borrowing costs are not the best medicine in these economic circumstances. The SARB has now again reduced its growth forecasts, with downside risks. The substantial 50 basis points rise in rates will unavoidably further dent business and consumer confidence, which is already at low levels. More…

The SARB’s interest rate decision Reply

We though about writing a post about tomorrow’s MPC meeting and the interest rate decision, but Cees Bruggemans already has an excellent post out. We are posting it here but you should visit his site and register for the email comments.

A shockable summer, by Cees Bruggemans Cees bruggemans

This summer, we got shocked (though not electrocuted) three times in quick succession: the Nene firing, the New Year financial Chinese fireworks, vicious drought. It sunk the Rand, and has by implication spiked inflation projections. Are interest rates next, or will it all remain a lot more subdued than imagined?

Headline inflation will move higher in the coming year, as much as 0.5% more than expected prior to Nene, gyrating in a 6%-7.5% range, wandering well off the reservation for most of the year. But supply-side shock spiked, not driven by excess demand. Indeed, demand growth will erode some more, worsening the imbalance between fading growth and lifting inflation. SARB is expected to meet this head on, but will it? More…

The research results are out! 1


The exports team: Marianne, Tasha, Neil and Carli

Over the past year Prof Marianne Matthee and Carli Bezuidenhout (as PhD student) have been working on a unique research project. In collaboration with UNU-Wider, the National Treasury and SARS they have been using administrative data to examine exports and productivity at firm-level in South Africa. The team also included Prof Neil Rankin from Stellenbosch University and his PhD student Tasha Naughtin. Yesterday they presented the first round of results to the media and other academics in the project at a workshop in Pretoria. Their results show that South Africa’s exports are driven by the large multi-country, multi-product exporters.

Other teams in this project looked at the two-way traders: exporters that use imported inputs, at firm investment, at total factor productivity, at market concentration and mark-ups, as well as at the impact of taxes on sales and profitability. These are exciting times for applied micro researchers interested in firm-level analysis.

The first AgEcon seminar of 2016 Reply

Agricultural Economics is one of the new programmes in the School of Economics and we are quite excited to have all the agricultural economists on the hallway this year.

They also received their first guest to the seminar series this week in the person of Prof Paul Ingenbleek of Wageningen University in the Netherlands. Wageningen is famous for its agriculture research and is very diversified in its training and research. Prof Ingenbleek is at Marketing and Consumer Behaviour, looking at agriculture issues in an African context.

Paul Ingebleek

Prof Ingenbleek being introduced by Dr Ernst Idsardi

Prof Ingenbleek presented a paper with the title: “If the consumer is far, far away: Overcoming remoteness on emerging markets through exploratory and exploitative market learning”.

It is a very cool panel data survey study of shrimp fishermen in Benin and examines the impact that distance from a main road has on the benefits that they could get from high-income market integration. He finds that:

  • remoteness is a disadvantage.
  • learning via exploring different production and marketing options did not help to access high income markets.
  • learning via exploiting existing abilities did help – but remoteness limits this.

We are looking forward to more of these interesting talks this year.