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'Fundamentalist' Stals may have overstepped mark MONETARY POLICY By SVEN LUNSCHE HAS Reserve Bank Governor Chris Stals overshot the mark? More and more economists seem to think so. Careful not to detract from Stals' achievement in bringing inflation close to the magical 5% level, the economists are nevertheless beginning to question the zeal with which interest rates are kept at real levels of more than 12%. The debate is rather mute as the introduction of the repo rate system on March 9 will leave interest rates largely at the mercy of the market. Yet economists like Absa Securities' (formerly of Edey Rogers) Edward Osborn feel the Bank has a lot to answer for: "Monetary policy remains highly restrictive because of the continuing preoccupation with inflation - indeed applied with fundamentalist zeal . . . . "Very likely the Reserve Bank will still be fighting that last war even when full-blown deflation is upon us. The policy is contributing to the deflationary situation through the hamstringing or destruction of highly geared small enterprises," Osborn writes in his latest economic overview. Even criticism by less outspoken economists picked up a few decibels this week after a range of indicators pointed to a less restrictive policy: On Friday the Bank released January money supply figures showing broad M3 supply steady at 17.22% year on year (December: 17.15%) and credit extension to the private sector slowing down to 13.38% from 14.18%. Consumer inflation fell to 5.6% in January from December's 6.1% rate. On the assumption of a lower oil price and a decline in the bond rate, inflation should dip below 5% soon. Economic growth in the fourth quarter came in at a mere 0.3%, slowing the growth rate for 1997 as a whole to 1.7%, well below the 3.2% of 1996. Slower growth led to a cut of more than 100 000 formal sector jobs. (Economy, Page 2). The battery of data has convinced economists that up to three percentage point cuts in key interest rates are on the cards once the repo system comes into effect. It is widely expected that the initial rate could be one percentage point or more below the current Bank rate of 16%. This should lead to similar cuts in commercial bank rates such as prime and bond. Financial markets have already discounted a onepoint rate cut. On Friday, in the wake of the money supply figures, long-term government bonds fell to 13.21%, their lowest since before the 1994 election. The decline was aided by a R1.2-billion fall in the money market shortage to R5.08-billion, its lowest since October, shortly after interest rates were last reduced. ý Trade figures for January released by Customs and Excise on Friday show both imports and exports slowed significantly in January. Imports dropped to R10.05-billion in January this year from R10.5-billion in January last year while exports fell to R10.53-billion from R11.07-billion following lower commodity prices and the Far East crisis. The figures for the first time separate SA trade from the figures for the Southern African Customs Union. They show the dominance of SA in the region. In January SA accounted for 98.6% of SACU exports and 98.9% of imports. Top of page | Home Page | News | BT Money | Survey | Companies | People | Appointments | World | Markets | Trends | Columns | News Maker | Money Guides | Labour Guides | Calculators | Search | Archive | E-Mail us |