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High rates will cause job losses, curb spending

By unknown | Jul 09, 2008 | COMMENTS [ 0 ]

Robert Laing

Robert Laing

Further interest rate hikes will do little to slow inflation, and may push the consumer side of South Africa's economy into a recession, Stanlib chief economist Kevin Lings argued in his quarterly outlook presentation yesterday.

But even if the Reserve Bank hikes interest rates by another 0,5percent next month as expected, the overall economy is not headed for a recession thanks to the mammoth infrastructure projects that state-owned enterprises are embarking on.

"For the first time in decades, we are seeing public corporations led by Transnet, Eskom and road-works spending more than the private sector," said Lings.

"The consumer side of the economy, however, is taking pain. Another interest rate hike will cause more job losses without doing much against inflation," he said.

"Raising interest rates won't bring food prices down, and food contributes 42percent of this country's inflation. Interest rates also won't bring petrol prices down, which contributes 18percent of inflation," Lings said.

"Demand for credit cards, home loans and other consumer borrowing was burgeoning out of control. So the past interest rate increases were definitely necessary. But the Reserve Bank has now achieved all it can against inflation by raising interest rates," he said.


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