Interest rates

[G_V_V]

Dear Mr Mboweni, Concerning further interest rate increases. Don't you think that the recent increases of interest rate have done their job of cooling down the economy as was intended? This obviously has had an effect of increasing the inflation due to the lower volume of turnover, inturn causing higher prices to compensate for profit. By increasing the interest rates further will only help fuel inflation further as profits need to be maintained by the lower turnover, which is caused by the higher cost of money from the higher interest rates. Higher interest rates in a slowing economy will only choke the economy even further and cause higher inflation to compensate for profits which an economy needs in a competitive environment. Businesses need to push up prices when volumes drop in a slowing economy so that profits are maintained. World markets are starting to rise from the credit crunch so it would be detrimental to go overboard by increasing the South African interest rates higher, believing that they will lower inflation now. To the contrary they will have an opposite effect. Interest rates should only be raised slowly when the economy is doing well and decreased slowly as the economy is not doing so well. It is no good to increase interest rates in a slowing economy as it is no good flogging a wounded horse with more floggings so that it will be more productive or efficient. In short don't overkill. I hope you will understand. Yours sincerely, G.V.Vitali I forgot to mention in the e-mail above that the inflation target must be between 1.3% and 1.4% and not 3 to 6 percent as at present. It becomes much more effective to control the economy with a low interest rate than with a high interest rate. The slightest movement in interest rates when they are low has a much greater effect than when they are high. I must correct with great importance the inflation target in the comment above. The difference of the percentages will become apparent in the effectiveness of the target. The inflation target should be between 1.39% and 1.4%, the bulls eye should be 1.395%. If you can keep the target for one jubilee period (50 years) you will have done you job correctly.

[#2]

i definetly agree with it slowing economy..interest rate hikes only widen the gap of problems. What "Mr Mboweni" or the guy who never gives a straight answer doesen't seem to understand, is that the current inflation rate is mainly driven by world pressures and fuel price, thats not any fault of our own really. to jack up the interest rate would only be efeective if we were the cause of the inflation rise,therfore curb us in some way....but the fact remains is that we are not solely responsible(if u excude eskom) and the inflation is mainly driven by fuel price which is the fault of that redneck in the west and his colleagues appetite for sub prime lending. seems like when the dollar gets weak or unstable, people use oil as a hedge and drive up the price based on pure speculation, don't u think that if some international law came into place that u couldn't invest by speculation or anything like that,don't u think it would help...i do know that opec refuses to increase output which also drives the price up..but i'm merely talking on a speculation curbing of some sort.

[SimonPB]

more holes then one can shake a stick at; but this morning PSCE came in at a nasty 22.62% vs 20.79% last time and an expected 20.50%. So people are not borrowing less.

hello another 50 points at the June MPC.

[Wizard]

Interest rates should be a function of growth and inflation. Not one should be compromised. Here in Africa no one has been able understand that, so the good old theory of interest rates and inflation predominates. I'm afraid to say, but the road to success is through ZIM!

[divz]

In my opinion interest rates remain one of the most effective ways to curb inflation and though it does not appear to have had much effect to date, my opinion is that most people have seen this as a temporary glitch and not really changed spending habits.Yes, fuel and eskom etc have been a major cause in increasing prices and we have no control over that right now but many people are still buying at increased prices. How many forumites can honestly say they have significantly changed their lifestyle over the last 12 months.

[Wizard]

Most of the companies had their increases in line with inflation, so nobody felt anything. Will see what happens this year

[SimonPB]

nah wizard, increase may have been at inflation - but debt costs have increased making people poorer.

[Wizard]

Can u expand a bit more on these costs with an example if possible. Thanks in advance.

[G_V_V]

There are a lot of ways to counteract cost-push inflation. The most effective is that the unionists must work together with business and government and educate their members to keep wages with the inflation target. This is naturally a global issue and greed for power by speculators should be avoided at all costs. What is important is that savings should be the goal to drive the reduction of unemployment. The high borrowing figures in South Africa are mainly due to the expenditure to expand the economy so it would be senseless to punish business by increasing interest rates. As for the speculation in the oil price sooner or later the bubble will burst and someone will have to pay for their fears due to their ignorance.

[SimonPB]

well a bond that was costing say R10k per month is now likely to be costing R11k per month now. So one is R1k poorer every month, and this will be the same for every debt that one has, and there is plenty debt out there. So salary increase at the inflation rate means you can still afford to shop, but debt cost increase means you actually have less money and hence can't shop as before. Have a look at retail sales, remove inflation and they growth is negative, in other words going back wards in real terms as people spend less coz they have less.

[G_V_V]

Ha ha ha buy yourself R1000 of Zim $ and perhaps one day you will truly be a billionaire.

[G_V_V]

The problem is that companies mush keep in line with the target and not the inflation.

[G_V_V]

ignorance is the greatest poverty.

[SimonPB]

well that's fine if you don't mind getting poorer. targets are just mythical things that get bandied around, inflation is the reality we live with.

[#15]

So can you still shop Simon?

[G_V_V]

I disagree, big business such as Billiton should be charged more for the voracious appetite of electricity, which by the way should be shared at low prices to all South Africans due to the great coal resources in the country. They should be encouraged to produce their own electricity if they want to make money from electricity consuming works as aluminum.

[SimonPB]

how does that help inflation?

[Preston]

Dear forumites. It is would great interest that i read this thread. Whilst the fundamental driving inflation is largely externally motivated. The solution to the problem is extremely simple. If the entire population buy a bicycle and cycle to work/gym , the government will not get all that funding from petrol in the form of taxes. This in turn will force them to ulitise the Petrol equalisation fund to fund the petrol and even possible reduce taxes. Everyone cycling will be fitter in a very SIMPLIER ,BETTER , FAST way whilst the Goverment will get MOTIVATED,INVOLVED and INSPIRED to do something. Many thanks

[bulletjie_1]

But the energy fund has to pay for all sorts of private expenses for our beloved government officials... its an open till drawer in a crowded bar

[G_V_V]

It keeps electricity costs down for the rest of the economy to produce goods which are more cost effective in line with the inflation target. What Billiton is basically doing is selling electricity cheaply in the form of aluminum to other countries at the local economy's expense.