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SA Reserve Bank in tight spot over interest rates
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April 09, 2008, 19:00
The two-day Reserve Bank monetary policy committee meeting could prove to be the toughest in years. There are many odds stacked against either keeping interest rates unchanged, or increasing them.
Economists are widely divided on what should be done because either way, consumers are already chocking, with petrol prices at R8.78/l, and Eskom seeking an exhorbitant 53% tariff hike.
Some economists feel fighting inflation with higher interest rates is futile at this stage.
Reserve Bank Governor Tito Mboweni is stuck between a rock and a hard place as the economy is already under immense pressure. Business and consumer confidence slipped to the lowest levels in years and car sales fell by 17.5%, leaving manufacturers feeling the pinch.
Consumer spending down
Rampant consumer spending on homes, cars and clothing is coming down; credit has declined from 23% in January to just over 20% in February.
But the question asked by most is whether or not the Reserve Bank can afford to keep the rates unchanged with the CPIX at over 9%.
Meanwhile global analysts, the Lehman Brothers, say consumer inflation won't return to the Reserve Bank's 3-6% target until the second half of 2010, if Eskom's price hikes get the go-ahead.
They have also warned of slowing economic growth. If it is true, it is unlikely that interest rates will fall in the next two years.
Eskom wants a 53% rise this year, and a further 43% next year. Public hearings on the matter will take place on May 23. A decision is expected in early June.
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