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Manuel looks for growth as rates fall
Finance Minister 'relieved' but wants to see more movement on rates, writes THABO KOBOKOANE
"Yes, it is a relief, but I would like to see people in this country placed in a similar position to the one in March. We have got to get the economy onto a growth path - high interest rates choke off growth potential," Manuel told Business Times. The Finance Minister was encouraged by the fact that Friday's rate cut by the banks followed so soon after the repo rate - the rate at which the SA Reserve Bank lends to commercial banks - dropped by nearly 60 basis points over three days. Commercial banks on Friday cut their prime lending rates by one percentage point, but mortgage rates were cut by less, if at all. "It is important that we don't ask banks to carry an unnecessary load or take on crazy risk, but it is also important for them to understand that they have a role to play in the economy. "Their actions can throttle the economy and indebt its future clients," he said. He warned that job prospects remained elusive, especially in the present environment of high interest rates, but added that the focus on gross job losses did not take account of commensurate jobs created. "The situation is not quite so dismal," said Manuel. Manuel also welcomed as "positive" the global leadership set by Alan Greenspan, chairman of the US Federal Reserve, and Eddie George, head of the Bank of England monetary policy committee, in leading a global effort to reduce interest rates. "The shift was needed for people to realise that the crisis is not an emerging markets' crisis, but a global one." Analysts said Friday's local cuts could soon be followed by another round of reductions amid growing signs that the world's biggest central banks are considering further easing in the coming weeks, ANDREW GILL reports. Friday's cut took some of the sting out of the sharp hikes in rates since early May - amounting to about seven percentage points - and although analysts say it may be some time before prime and home loan rates are back at their pre-crisis levels of about 18%, there is room for at least another one percentage point cut this year. But local rates are likely to wait for more cuts internationally and signs of stability in world markets. "It may be wait-and-see for a while. The Germans seem reluctant to cut, while the British monetary policy committee meets early next month," Nedcor economist Magan Mistry said. The US Federal Reserve, which surprised markets with an emergency cut in rates on Thursday, meets in mid-November and could provide the spark for further global easing amid concerns about slowing growth worldwide. Johan Rossouw, ABN Amro economist, said the quick reaction by local banks to the easing in the repurchase (repo) rate this week was the result of a general improvement in margins since late September. "Margins have opened up considerably and pressure has been mounting for cuts," he said. But Mistry said the easing on Friday was unlikely to have a major impact on growth prospects or the consumers' pocket, although it was a good start. "Even at 18%, rates were high. We need a couple more percent before growth picks up. People are in debt and rates are punitively high." The signal to commercial banks came at noon on Friday when the repo rate eased by 26 basis points to 21.343% after the Reserve Bank met the market's full liquidity requirement. It followed a similar easing earlier in the week. The Reserve Bank's stance on Friday was technically only a neutral one, and significant further falls in the repo rate are unlikely until the Bank actually overallots the market's liquidity need. Analysts are expecting flat or low economic growth of up to half a percent this year based on the damage already done to the economy by the recent crisis. Francois Jansen, chief economist of Boland PKS, said he expected local bank lending rates to be as low as 18% by the end of next year. The talk of easier rates led local equities sharply higher through the week, leaving the overall index about 12% higher in just five days. But the lower repo rate on Friday contributed to a fall in the rand, leaving it at R5.68 against the dollar late on Friday.
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