Gauteng Business News

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Finance: Rate hike could be the last straw for consumers


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While there are talks doing the rounds that interest rates might go up – due to SAB Governor Tito Mboweni’s steadfastness to target inflation – other central banks around the world have managed to cut rates in the face of growing financial turmoil.

A rate increase in SA could spell doom and gloom, not only for consumers – but for many businesses as well.

This is according to Pule Mokoena, group executive of marketing at Innovation Group, the leading administration and consulting company – and the SA subsidiary of London listed Innovation Group plc.

“The economic slowdown is really biting now with around 2 000 houses being reposed every month. One in two car dealerships are making a profit, a situation that is not going to improve as more than 100 000 are waiting for buyers around the country. The economy is pushed to its limit at this stage,” said Mokoena, “and a rate cut would be the right medicine, not a rate increase.”

Speaking at a media briefing recently Kevin Lings, Stanlib’s chief economist, said that he expects a rate cut – but only in April next year. Until they would hold steady, although some economists would disagree.

He said that other central banks had managed to cut rates in the face of the financial turmoil sweeping the word, but said the SA situation was “slightly different”, because the SARB governor, Tito Mboweni, is on the conservative side and is waiting for evidence that suggests the country’s inflation is dropping.

He further said that a rates drop is likely to be delayed until more clarity emerges about the re-weighting of the inflation basket – which could knock inflation down by 2% points.

“This will indeed be good news for the economy,” said Innovation Group’s Mokoena.
“And I believe this is a distinct possibility.”

Hings believes that the current 13,6% inflation rate is likely to be at its peak and that if it comes down it will still be high at above 13%

“The market must understand that what goes down must go up. But in tough times people and companies panic and seem to forget this fact.” said Mokoena.

Innovation Group, he said, is still on a growth path and will continue to recruit more staff during 2008 and into 2009.

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