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Question of the Day: How do you normally pay for purchases in stores?
Mboweni considers 200 Basis Point hike
- Thread starter kingmonty
- Start date
Not a single one of the last 9 rate hikes has positively impacted inflation. In fact, since the reserve bank started hiking the repo rate the inflation numbers have been on the up consecutively, falling increasingly outside the government's target range. There is a strong body of thought that now believes that inflation targeting with interest rates alone is an inefficient and most often entirely ineffective method to do so. Also, given the unique state of our economy, one must realise that our economic growth is also a target that is now outside the target range, and that dropping further would be even more destructive to inflation numbers. Either way, we're in for a rocky ride, and a 200 basis point hike would be a very bitter pill to swallow in already tough times. And I'm not sure it will actually do what they want it to... It is Mboweni's only tool in terms of their strict emphasis on policy to target inflation, but it's not working and probably won't work until there is stability in worldwide food production. As for the food production issue, expect that to continue for at least another 6 months.
Back in the 80's South Africa was a closed economy with no power shortages and exchange rate woes. Also, there were no international food and oil crises. Times have changed, yet the inflationary targeting tools haven't.
Moederloos
Honorary Master
But many of them will be unemployed. 2% will see the end of my domestic. The last interest rate hike saw the end of my gardener.
I know many people will say that is stupid etc as I could rather just cut down on "eating out" etc, but before they do: We already don't eat out (since 2006), DSTV was cancelled last year in March, I wear the same clothes I wore last year and so on.
Right now, I am down to Medical Aid or Maid - and guess which it will be?
Anyways, and anyhows, if it goes up 2% guess what? I will simply need to demand an increase at work - leading to guess what? more inflation.
Vrotappel
Bulls fan
Same here, we already decided that the domestic is going end of September. Thanks to you Tito one more unemployed person.
alloytoo
Honorary Master
Consumer spending has been effectively qwelled by the previous interest rates hikes.
The growth figures show this. (one only has to walk into Makro to see how desperate they are to flog the high end merchandise)
Local interest rates cannot qwell China's demand for commodities, it cannot effect the global oil price.
What is going to happen is that after the Olympics the Chinese economy is going to implode, this will dampen global demand, reduce commodity prices and leave some speculators bankrupt (and I for one will shed no tears for them).
Right now a interest rate hike will only push inflation, as business overheads (wages, bonds/rentals, and overdrafts) will increase leading to more price hikes.
I do appreaciate Tito's frustrations, the tools he has simply cannot cope with the global externatities he's facing, but further interest hikes will torpedo our economy.
Moederloos
Honorary Master
I don't. Government, and its parastatals, is the biggest factor in high inflation.
Look at the wage increases, electricity nonsense, fuel taxes, electricity levy, rates and taxes increases.
Government needs to curtail their own increases and expenditures before coming to hit me over the head for mine.
alloytoo
Honorary Master
Agreed, but Tito doesn't have much control over that either.
I have to wonder at the hidden costs of government BEE procurement. Companies which slap on 30% just for having a black partner. No value is added, the service/product is exactly the same, only the tax payer pays more and the BEE partner plays golf.
Moederloos
Honorary Master
alloytoo
Honorary Master
Tito has a lot more control over it than you or me though.
Methinks is past time to stop subsidising the ANC's foolishness.
Moederloos
Honorary Master
Look at the bread price fiasco. Big companies get fines for price collusion and then, does the price decrease? Hell no. "Fines" were probably used for a overseas holiday.
alloytoo
Honorary Master
I'm still tryng to understand the logics of the fine......I mean where is the company going to get the dosh to pay it.......D'oh the customers/consumers, who else.
Lord Anubis
Expert Member
This will lead to a lot of business' closing, massive unemployment, anarchy and the finally civil war. I predict that long before 2010 our country will be destroyed. Calling this place, ZIM2.0 is now a reality and not just a joke anymore.
Ou grote
Honorary Master
Wasn't that last year?
Hoof-Hearted
Expert Member
Nope that was when One-Trick Tito was appointed in the first place
I was listening to Dawie Roodt, the well known economist this morning. He reckons 1% is enough and that in the interest rate cycle we will be hitting the ceiling within the next 1 or 2%. Personaly I believe joe citizen has tightened his belt and borrowing less and that it is all out of our control, so an interest rate hike is not changing my behaviour as it has already changed. The only result will be people losing houses/jobs etc.
The people commenting on here that it is a SA problem are wrong, it is a worldwide problem. We could just drop rates and print money and delay the pain, you only have to look at Zim to see how that can go wrong. What realy worries me is the USA and UK. They are approaching elections and the existing Governments are delaying the pain so as to win votes. They reduced rates and pumped in money. They will just fall harder, which will have an impact on us again.
The people commenting on here that it is a SA problem are wrong, it is a worldwide problem. We could just drop rates and print money and delay the pain, you only have to look at Zim to see how that can go wrong. What realy worries me is the USA and UK. They are approaching elections and the existing Governments are delaying the pain so as to win votes. They reduced rates and pumped in money. They will just fall harder, which will have an impact on us again.
Considering that inflation targeting is bad economic policy that only hurts the people it is supposedly meant to help and the fragile state of the South African economy any further increase in interest rates is very dangerous.
Ah yes, that is going to be a huge benefit. South Africa's employment rate is just too high.
Although the UK also subscribes to inflation targeting they are taking a sensible approach. They would rather consider making sure their economy does not take the damage. A good decision would be to throw inflation targeting in the trash where it belongs.
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Ou grote
Honorary Master
Both are already hurting the poorer people. And if you think they're not carrying debt you are sadly mistaken. And inflation will cause them to take on more, while interest rates will lead them to default (whether Mad Tito's interest or that of the local loan shark). On top of that if they don't own the property on which they live they can expect their rent to escalate beyond the inflation rate. The poor are the ones who are going to be hit from all sides. The middle class are much more likely to be able to cope, they're the ones least likely to become unemployed (they are presumably skilled), and if they have skills that are in demand they can push for bigger pay increases to compensate.
Maybe we should send the entire MPC on a tour of a local ghetto area and let the residents know that they're costing them jobs. We can all break out some marshmallows.
It's causing the kind of damage expected. Amongst them further job losses. It being factored in does not make it good policy.