Resolving to keep in financial and physical shape
Colen Garrrow
MARKET EYE
I WONDER if you are more disciplined than I am in keeping New Year's resolutions, especially the ones not to use that credit card and to get your body into shape.
Unfortunately Y2K didn't make my credit card disappear, so I've again solemnly sworn not to use it.
Of the two resolutions, the one I keep longer, however, is to get my body into better shape. I say "longer" in the relative sense because by the time winter arrives my enthusiasm for getting to the gym at 5.30am has worn thin. And well before this happens, my bank manager is flirting with the boundaries of the Usury Act, charging me a rate for using his credit card that would make a loan shark blush. Anyway, it's good to know that our economy is in better shape than a year ago, even if my body isn't.
By now, you've probably realised that Y2K was the biggest scam since the culture pyramid scheme collapsed more than a decade ago.
Any spare cash you have is probably going to go right back to where it should have been - in the bank.
Maybe you're feeling as stupid as I am for drawing more money than you needed last month. But, you probably thought it was better to be cautious just in case systems crashed and you weren't able to get cash from your ATM.
Now you know why there is that old saying about nothing being as safe as a bank. With all the currency likely to come back into the banking system, the SA Reserve Bank will probably be a bit more relaxed, and allow interest rates to fall. The pressure will then be on the major banks to cut their lending rates.
I can't help wondering about the fairness of the rumour that banks collude in setting rates. I still find it strange that most of them seem to make an interest rate change on the same day. Rumours aside, you won't hear me complain if my bank cuts the rate it charges me by the one percentage point I'm expecting by the end of the month.
There is something else we can look forward to this year. Trevor Manuel delivers the 2000/2001 national budget on February 23. All too often we think it's the Reserve Bank's responsibility to stimulate the economy and cut interest rates, but the government must also do what it can.
Chances are better than good that the Finance Minister will cut taxes for middle and lower income earners. I'll also be watching to see whether he relaxes exchange control regulations. I doubt foreign investors will be disappointed.
He'll also announce what inflation targets the central bank will be performancetested against. Before you ask what this has to do with the shortage of nails in Uzbekistan let me say that this is the most effective method of appraising the Reserve Bank's management of interest rates.
If it can bring inflation down to between 4% and 7% in the first year, and 3% to 5% the next year, it could pave the way for single digit interest rates in South Africa over the next three to five years. It will probably be the first time in our history that we'll have single digit inflation and interest rates.
If there is one thing I remain concerned about this year, it's overheated American equity markets.
I can't help wondering why anyone with Internet access would want to buy shares when companies there are paying more for their labour, more for their oil and more for their borrowings. And, interest rate hikes don't seem to be over: the Fed funds rate is expected to be hiked another half percentage point, to 6%, before the middle of the year, a fire-warning that investors can expect company earnings to shrink and equities to weaken.
The problem this can create for SA is that when the US trips, we fall. The other thing I have experienced is that stock market corrections come when you least expect them. An example of things unexpectedly happening was in 1998 when we thought rates would fall. They didn't.
Colen Garrow is an economist at ABN Ambro
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