Bonking and juggling central bankers ju...

Give the people a chance to take respons...

BRIEFCAS...

Back To Home Page

Bonking and juggling central bankers just do not fit the mould

This was a smart move. When interest rates rise, as they have been doing in the UK since Labour came to power, the politicians can sit back with a clear conscience and blame the bankers. On the other hand, when interest rates fall the politicians won't really be entitled to take the credit - although I am sure they will have a damn good try. Here in SA, the decision to move interest rates is already with the Reserve Bank and the odd thing is that there are suggestions that it shouldn't be. Judging by letters to the newspapers, many people appear to think that Reserve Bank Governor Chris Stals moves the Bank rate on whim, depending on how he feels at the time, and they cannot understand why he hasn't obligingly moved the Bank rate down in the past month.

The finely honed economic minds of Cosatu even seem to suggest that there is some conspiracy whereby Stals deliberately keeps interest rates high to deprive black people of jobs and to keep those who still have a job on their toes. In the corporate world, the plea for lower interest rates tends to be less politically charged but just as emotional. Businessmen prefer to personify the economy as a frail and sickly patient, coughing and spluttering as it wanders the hospital wards looking for a solvency fix. Unless interest rates are brought down immediately, they sob, the patient could die. All this is very heart-rending, but doesn't sound too convincing when measured against a fairly robust equity market.

After all his years in the job, Stals is not about to start predicting interest rate cuts and the best he would offer us a few weeks ago was the comment that interest rates could fall by the end of the year if all the economic data looked good. At the moment, only some of the economic data looks good. Unfortunately, we still seem to be borrowing too much according to the credit growth figures. This is very puzzling, because everybody I know is frantically trying to reduce their indebtedness and the small retailers are full of gloom because people are not spending enough. So who is doing the borrowing? One worrying view is that the banks are lending to speculators who are driving the markets ever higher on other people's money.

IF THIS is the case, we are unlikely to ever see a fall in interest rates. While there is the perception that there is a fast buck to be made, the speculators will be quite happy to borrow at our painfully high interest rates if they believe they can double their money. If and when a crash comes, interest rates will still have to remain high because borrowers will be unable to repay their loans if their investments are worth less than they paid for them.

This gloomsday scenario may be complete nonsense, of course, but at least it gives us something else to fret about.