100bp

[_nova]

the 945bn estimate by the IMF is just the tip. The trillion meltdown has arrived and ostriches are hiding their heads. Tito ain't no fool. We're gonna get hit hard by this and he needs to curb spending on foreign goodies. OMO

[#2]

the one thing most people seems to be missing is the fact that petrol and diesel increases are to blaim and then add eskom to the picture.They can hike rates as much as they like inflation will increase until petron etc stops increasiing .Most will be paying R200-R300 more / month for electricity if eskom gets its way.etc etc etc.Start looking at the bigger picture and not just at interest rates.

[saash]

The problem is that with interest increases, Tito can only do so much. Add interest to bonds/rentals and borrowings on corporates, only escalates their input costs. There comes a point where interest increases start to fuel inflation as manufacturers increase prices to meet their profit targets. Interest increases also start to put pressure on wage increases, fueling inflation. More needs to be done here.

[_nova]

my point exactly KIM. We export crown jewels cheep-cheep and buy 'em back at a premium. How stoopid can an economy be? We don't manufacture nuthin! We import everthun and our current account is balanced by foreign cash inflows which right now seem to be runnin away to safer haven's? What u think Tito's choices are?

[_nova]

Tito has to make the lesser of two bad choices. I reckon he might leave it unchanged to buy time but he know's it won't last. The thing he has to figure out is what will have the lesser 'bad' punch, increase now or later becoz I reckon them 'conomists got it wrong... the so called 1st world is in for a whacking bad time

[#6]

when VW and industry starts working short time or laying people off, because people r not buying their cars etc, people cant pay for their houses and we get into the same boat as US where all this credit sheila started and so the snowball gets bigger and bigger.

[#7]

Interesting article i read recently! We're importing inflation by accumulating dollar reserves There has been much talk about the central bank's focus on controlling inflation. This has been used to justify the hikes in interest rates we have had over the past 18 months. However a bizarre situation is occurring where the central bank is actually encouraging dollar-led inflation through the continual purchase of dollars and sale of rands into the forex market. Over the past 18 months the Canadian dollar and the Australian dollar have appreciated by 13% and 15% respectively against the US dollar, whilst the rand has depreciated by 11% over the same period, despite our economy being driven by the same fundamentals (high commodity prices). What impact can this have? The price of a barrel of crude oil, in Aussie dollar terms, is up only 13% during this period whereas in rands it is up an enormous 49%! By following a policy of a weaker rand, or one pegged to the dollar, we are importing US dollar-led inflation. The argument that this enables us to maintain a competitive manufacturing base is completely destroyed by the fact that inflation is immediately used by organised labour to push for higher wage increases (as we have seen this past year). This immediately raises our cost of production, nullifying the effect of the weaker currency. Devaluing one's currency has never proved to be a long term sustainable way to build an export franchise (the example of Zimbabwe being a case in point). So we sit in a curious position of an institution that is on the one hand pushing up inflation in the domestic economy through a policy of continuous reserve accumulation and, at the same time, punishing mainly the consumer with a series of interest rate hikes to supposedly reduce inflation. As long as food and energy prices continue to rise inflation expectations will remain high. Only when these factors start to taper off should we see a return of inflation to the 3% to 6% band. This fascination with building reserves and keeping a weaker rand only serves to damage the inflation psyche of the public at large, and one cannot ignore the cost to the fiscus that is being incurred as the public carries the high domestic interest rate cost to fund the buying of low-yielding dollars. Dollar reserves over the past 18 months have grown from $23.8 billion to $32.8 billion - a growth rate of 32%. Why are we still building these? To sterilise this reserve the fiscus has to borrow in rands (at ever increasing rates) and earn a much lower US dollar rate. This means the taxpayers who are suffering from higher interest rates also have to pay (through their taxes) for the pleasure of importing inflation. It is time that the central bank and the treasury begin to think more about all the available options to control the inflation scourge and how to deal with a world where a weak dollar is prevalent. Our largest trading partner is the Euro block where we have seen an enormous 32% decline in the value of the rand over the past 18 months. No wonder the cost of the new Eskom power stations continue to rise, as all the technical equipment is imported from Europe. We will be living with that cost inflation for the next 30 years!

[Preston]

Pack up your troubles in Tito bag and cry ,cry cry.

[_nova]

so 100bp is not such a bad idea?

[DST]

Interesting piece.

Who is more stupid, the guy who takes a knife to a gunfight, or the bloke who sent him?

All we seem to see is a toothless dog barking at current shadows of prior data - and yet money supply escaped years ago, and while it funneled into asset prices (homes and portfolios) we thought the policy was cute!

We seem set, as ever, on the path of doing too much, too late about deemed temperature in the economy. Sort of like a learner driver oversteering. Who gives them the keys, never mind the map?

[Preston]

I think a 25 basis point is on the card

[_nova]

hmm, u got a point there. Might create a bit of an impasse and mitigate volatility? who knows?

[saash]

I think .25 would be appropriate at this time. Along with the use of other economic policy, like price caps or govt.subsidies on certian basic needs items.

[_nova]

actually a knife is almost always the better idea. Takes on average 6 seconds to get a gun into play while only 3 to make a knife work over 30 feet...

[_nova]

you mean socialism?

[saash]

no - Government aid. I don't understand that as being solcialistic.

[_nova]

well the gov don't have no money unless some productive member of society 'gives' it to 'em. That's the point... people always see gov money as an 'asset' while all it is, is borrowcrats taking income from workers and spending it on behalf of non-workers where the spending, in the case of this economy, goes into foreign pockets mostly! Anyway, a Marshall Plan won't work here unless the spending remains inside the economy

[saash]

Using the tax surplus to assist farmers to produce maize and wheat at a lower cost and putting a proportionate cap on the sell price of bread and pap ... for example. Uses money that is currently in treasury (per Trevors budged speech - for rainy days), and injects it into the economy where it is in fact needed, while helping the consumer meet their basic needs so that they don't have to lapse on their bonds. Or putting into health services so that we don't have escalating private medical fees. Or to assist with "Power to the People" ... anything to put money to good use, minimising our imports, in order to keep production costs down.

[_nova]

saash, I totally agree with your view but what's the chance it will happen? You need a competent distribution mechanism to make such a thing work and you need to spend the cash inside the economy. Methinks this kind of spending will either flee the borders or else remain unspent

[saash]

Trevor put that surplus aside very deliberately. The economic advisors have been discussing it for a while, and I think there is a chance they may be looking into it. It was certainly on the table at the last rates meeting. Lets see what they decide.