Guiding consumers since 2009

Last interest rates meetings for Tito

By Staff Writer

The Guv, Tito Mboweni has already had his farewell dinner from the Reserve Bank. He is only leaving in November and between now and then there are still three meetings of the Monetary Policy Committee. The MPC under Mboweni has been pursuing a policy of inflation targeting via interest rates. First they put them up and then they cut them, and recently they have been holding them. Few economists believe that there will be a cut this time around, so what are the factors involved?

 

  • Inflation is coming down
  • Marcus replacing Mboweni
  • No policy changes in sight

 

Inflation targeting is a slow process as interest rate changes take months to filter into the economy. Cuts that were made at the beginning of the year are only now starting to manifest in the day to day economy. The high interest rates that we suffered helped to bring down credit spending and just in time to avoid the worst of the global financial crisis. They have not been popular but interest rate manipulation should not be confused with populist. Populists may cry out against interest rates but they favour those with large borrowings not workers.

The fact is interest rate manipulation has helped to slow inflation, and low inflation is in the interests of the poor. When you spend on credit essentially buying today on the promise of future earning you overheat the economy and a crash is inevitable. The National Credit Act also helped to slow our profligate spending just at the right time. So people are buying less on credit, inflation is cooling down and The Guv still has another three meetings in which to pursue his mandated policy. Recent polls suggest that most economists do not expect a cut to be forthcoming and that the Reserve Bank already lies in the hands of the New Guv, Gill Marcus.

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