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By unknown | Oct 24, 2008 | COMMENTS [ 0 ]

Lihle Mtshali and I-Net Bridge

Lihle Mtshali and I-Net Bridge

Economist are divided on whether the Reserve Bank should hike interest rates to stave off the rand's free-fall when its monetary policy committee meets in December.

The International Monetary Fund recommended this week that South Africa may need to raise interest rates again in the near future to stem the second-round inflation pain.

Fanie Joubert, an economist at the Efficient Group, said raising interest rates now would be for the wrong reasons and would put consumers under even more pressure.

He said: "We are a small open economy. Even if we do hike rates there's no telling that the dollars will start pouring in."

The rand fell to 11,90 to the US dollar overnight on Wednesday and was at R11,60/$ yesterday morning.

It staged a mini recovery in late trade as some exporters entered the market.

It was bid at R11,39/$ yesterday afternoon from a previous close of R11,57/$ - some 42 cents firmer than the intraday worst level of R11,82/$ it reached in earlier trade, which was its worst level since March 2002.

John Cairn, a currency specialist at Rand Merchant Bank, said in a note yesterday that further rate hikes locally "could really push the economy over the proverbial cliff".

Joubert said acting now by hiking rates on two to three weeks' developments in the exchange rate would send the wrong signal to consumers.

He said most economists expect inflation to be back in the 3-6percent target range in the next 12 to 18 months.

"My view is that we should just sit out the storm," he said.

While the rand has fallen sharply, inflation will not rise to this extent as oil prices have fallen more than the rand has depreciated, said chief economist from Standard Bank, Goolam Ballim.

He does not foresee a "top-up" in South Africa's interest rates but he predicts petrol price declines "in all likelihood" next month.


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