Gauteng Business News

Send  Share  RSS  Twitter  27 Feb 2009

Finance: Rate is a Drag on the Economy


Recent Gauteng Business News

The trade union Solidarity today labelled the current interest rate a drag on the South African economy and therefore urged the monetary policy committee to call an extraordinary meeting in order to make a further adjustment to the interest rate. Solidarity’s appeal follows the announcement today by Statistics South Africa that consumer inflation for January has fallen to 8,1%. It is the first month in which the adjusted inflation basket has been used.

“The current monetary policy stance does not agree with the aim of the fiscal policy and that is why it has become imperative for Tito Mboweni and his team to cut interest rates,” explained Solidarity spokesperson Jaco Kleynhans. “It is the Reserve Bank’s mandate from the government to control inflation and it is clear that the monetary committee has now achieved this goal because inflation has been brought much closer to the set target of between 3% and 6%. The current high interest rate being maintained by the South African Reserve Bank is, however, a drag on government’s efforts to stimulate economic growth.”

Solidarity argues that government’s budget is structured in such a way that it must encourage economic growth in these difficult conditions. However, this goal is severely limited by the sustained pressure the high interest rate has on consumers and companies. The trade union believes that a drop in the interest rate of at least 1% would place much-needed money back in consumers’ pockets and would, in turn, encourage higher spending and eventually help promote growth. In addition, it would give companies the opportunity to do the necessary expansion.

Meanwhile, the latest gross domestic product (GDP) figure is also causing warning lights to flash for South Africa. According to this figure, the economy has registered a decrease of 1,8% annualised quarter-on-quarter. In order to deal with this shrinkage, the fiscal policy already favours expansion and the monetary policy must now also be adjusted accordingly, Kleynhans said.

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