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Another rate hike could hurt country

By unknown | Dec 07, 2006 | COMMENTS [ 0 ]

Connie Nkosi

Connie Nkosi

While the expected interest rate increases are certain to slow consumer spending and fight inflation, they are unfortunately bound to hit the man on the street very hard by making him dip into his pocket and pay more for his new home.

Furthermore, high interest rates seem to have a dampening effect on economic growth.

In the end it does appear to be a catch-22 situation: should the Reserve Bank not raise interest rates and allow inflation to spiral up to double-digit figures, or does it apply a tight monetary policy to discourage spending on credit?

Historically, when authorities start putting brakes on spending by raising interest rates, the result has been the slowing of the economy. In the 1980s, due to the stance adopted to fight inflation, the Reserve Bank adopted a conservative policy which was successful in fighting inflation but put the economy into a serious recession.

It is well and good to be conservative but this could place the government's strategy of Growth Employment and Redistribution (Gear) in jeopardy.

Finance Minster Trevor Manuel has predicted 6 percent growth but is this attainable? Can our newly found bullish and optimistic economy survive the artificial slowing down?

South Africa is faced with a large number of homeless people who are becoming homebuyers for the first time. This is why we are seeing an increase on mortgage advances of 30,3 percent year on year. Is it not the government's responsibility to help people to own homes?

By increasing interest rates, we will curb inflation but we will render some people homeless.

Increased productivity could help curb inflation, but we can only attain this if organisations embark on training and skills development programmes.

l Connie Nkosi is executive chairperson of Lidonga Group Holdings, a black women's investment company, and sits on the boards of a number of local and international companies.


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