Guiding consumers since 2009

Buyers will soon feel the pinch

By Staff Writer


From FIN24.co.za
October 19 2007
By Michael Coulson

Johannesburg - Higher interest rates and stricter credit requirements that came into effect on June 1 seem to have had little effect on the consumer spending boom that has driven the country's recent robust expansion, said global analysts Moody's Economy.com on Friday.

South Africa's latest retailing figures released this week suggested consumer spending is still driving domestic demand. The data showed that retail sales growth accelerated for the first month in three during August, quickening to 6.9% y/y from 5.2% in July.

"The recent consumer spending binge has left South African households highly indebted, and hence, increasingly sensitive to interest rates," the analysts pointed out.

However, they noted that there was a lag between when rates are first tightened and their effect, and that this full impact would likely be felt heading into 2008.

"Nevertheless, we expect the lagged effect of the SA Reserve Bank's monetary tightening over the last year to take some steam out of spending and credit demand heading into 2008. Despite tough talk from central bank Governor Tito Mboweni this week, we suspect interest rates have also peaked in South Africa," concluded the analysts.

Reserve Bank Governor Tito Mboweni said on Tuesday in an address at the Rand Club that inflation expectations need to be anchored on the lower side, and that if people do not "feel the pinch in their pockets" they will not respond appropriately.

He added that in raising the repo rate last week, the central bank had done what "we think is good for the country".

"If we exclude oil and food we still find inflation is trending upwards.

All other components are now picking up and there is clear evidence second- round effects have taken root," said Mboweni.

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