Len van Heerden, News24 User
Tito Mboweni has hinted that the MPC might consider doing something about interest rates in reaction to the world economic slowdown and actions by other countries.
We have a well-managed economy but despite this, it has slowed down in the last quarter to 0.2% growth.
Our overriding policy has been the management and control of inflation. Despite several interest increases, inflation romped from 4% to 13% before it started a downward turn and it is now at 12.4%. It is likely to go into single digits as soon as February because of a recalculation which was delayed. This will still mean that inflation rate is outside the 3-6% range. The effect of oil will likely have another 1% impact over time.
At what cost, I ask? As mentioned earlier, the economy is unlikely to see higher growth and our exporters are not taking advantage of the weaker currency.
Experts say we really did not have much control of our inflation (oil had a lot to do with it) and so punishing the South African consumer would have a negative effect on the economy. They were right.
So, what do we do? I still believe that fiscal prudence is still necessary, but we need to radically shift our mindset in terms of the relationship between interest rates and inflation targeting.
The economy is important and in order to provide employment, it needs to grow.
Inflation is a potential problem, but we cannot always look to Zimbabwe for inflation that has received less than top priority.
What to do
I would therefore urge Tito to consider the following options:
1. Bond rate fixed for 20-30 years at around 7%. This would only be applicable for the primary resident and one cannot transact from this account. You can choose to pay early, but you cannot borrow from this account.
2. Rates for credit cards, personal loans to rise to 20% or whatever rate the lending banks choose.
3. If purchasing a car worth less than R150 000 the individual would be allowed a rate of 10% again fixed over an agreed period. This is only applicable to a person buying their first car or primary car to get to work.
4. Small business loans should be at 5% for the next five years to help spur the economy. We cannot rely only on BBBEE for small business development. At the moment, so many small businesses fail because their cash flow is affected by the payment cycles of the big companies (Pick 'n Pay only pays after 90 days but demands cash on receipt) and government departments.
Also, paying 20-25% of your income to a bank prevents you for expanding and employing more people. Large companies do not create employment over time. They simply exchange faces.
South Africa is falling behind in terms of small business development for the rest of the world. Consider that 80% of new growth around the world is due to small businesses.
It is one thing for Tito to lower the repo rate by 1-2% as expected, but more needs to happen to ensure that small businesses become the cornerstone of the recovery.
We need to start understanding that not all credit is bad, and less spending means fewer employed people which means more people relying on the state which could also be dire for the economy. We need a balance and Tito has that opportunity.
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