Interest rates down .5%

[QUINN]

Lend a hand, please

Article By: Michael Hamlyn
Wed, 03 Jun 2009 07:02

Lending rates do not have to be equal across the banking sector, the Democratic Alliance said on Thursday.
Now that is a fresh approach...

This followed the trimming by the Monetary Policy Committee of the SA Reserve Bank of the repo rate by 100 basis points to 7.5 percent.

While the DA welcomed the reduction in rates, DA MP Dion George said there was an element of disappointment that all the commercial banks had only cut their prime lending rate by 100-basis-points.

"There is no reason why lending rates should be equal across the banking sector; nor is it necessary to reduce the rate of return paid to people who hold deposits, such as pensioners and other savers.

"The banking sector now ought to demonstrate that it understands the pressures facing customers," George said.

He added that he was looking forward to seeing the report of the sub-committee set up under the leadership of Banking Association head Cas Coovadia and the SARB's Roelf du Plooy.

The committee was set up after Reserve Bank governor Tito Mboweni's recent meeting with Tom Boardman of Nedbank, Absa CEO Maria Ramos, Investec head Stephen Koseff, First Rand Bank chief Sizwe Nxasana and Standard Bank deputy CE Sim Tshabalala.

Mboweni has — on several occasions — criticised commercial banks for refusing to narrow the 3.5 percent gap between the repo and prime rates.

George said that while he was aware that commercial banks had to look at their margins, "we are in a difficult place economically".

He added that the DA would not allow the issue "to go away."

Banks, he said, should do "a little more. We're all in the same boat together".

We can only hope...

[Dave A]

That makes gov/ANC, the DA and the unions all singing the same tune. With less than 50% of the local banks' income coming from interest nowadays, I'm inclined to see this as poorly researched populist rhetoric.

Someone needs to come up with something new because this bleating isn't going to cut it. The banks are not going to give away profits without good cause. Find a useful angle, for goodness sake.

Something like this:

On current form the economy is going to contract viciously, raising the spectre of significant bad debt and default. Small adjustments in lending rates can shift a large number of companies and individuals that are currently drifting backwards into oblivion into positive, viable territory.

If the banks give a boost now to these marginal enterprises and individuals who are sitting just on the wrong side of zero through trimming their margin, it's an investment in a far bigger platform towards recovery and hence far better profits tomorrow.

Then back this up with figures that demonstrate the significance of easing the rate .5%.

How many businesses and individuals would be returned to profitability, or in better shape to survive to the turnaround?

Create and back up an argument that caters towards the banks' self-interest and they stand a chance of actually achieving it.

[Dave A]

I'm glad to see I'm not the only one who sees Cosatu's position on inflation targetting as harmful populist rhetoric.

Two of South Africa's top economists yesterday challenged Cosatu over its role in the angry debate around inflation targeting.

The union has opposed the Reserve Bank's 3 percent to 6 percent inflation target range and has also criticised the concept of inflation targeting.

Iraj Abedian, the chief economist of Pan-African Investment Research, said inflation harmed the poor and he was surprised that Cosatu was not prepared to face that reality.

And Econometrix chief economist Azar Jammine said Cosatu was "remiss" for not focusing on the real issues around inflation, including poor labour productivity.

"But that could threaten its power base," he said.

Mboweni was criticised for attempting to keep inflation within the target range, because high interest rates caused hardship to householders.

But Abedian said growth and job creation would be eroded, and the poor would suffer, if the target ceiling was raised from 6 percent to 10 percent.

The reason was that real purchasing power is destroyed by rising prices. Abedian said the underlying causes of inflation were often overlooked.

"Politicians, trade unionists and some economists don't want to be confused by the facts," he said bluntly.

He identified the essential problem as "production costs which are influenced by labour productivity, the cost structures of public utilities and the scope for collusion and price- fixing in the economy".

But he said these issues were lost in the debate over inflation targeting.
full story from Business Report here

[Marq]

Just more sleight of hand stuff as the anc allows the communists to take over our country?

Cosatu's intention is to keep the poor, poor and the rich feeding their system. 'Redistribution of the countries wealth will carry on through these financial mechanisms, through affirmative action, bee and naive political people and structures.

Look at the threats arising from poor service delivery. Look at the threats arising from the provincial/ municipal restructuring. Look at the threats from strengthened unions and sacp structures. They have their foot in the door and are forcing it open.

I think our interest rates are determined by world bank, external investment influences and the gut feel of a bunch of bankers. This target inflation calculation stuff is actually non existent.

There is debate on what the inflation rate is never mind being targeted. If we dont like the number, change from CPX to CPIX. If we dont like the number then exclude or include items into the basket - then if that does not work, change the weightings and basing of the cpi basket.

Municipal rates are excluded from the core inflation rate yet my rates have increased by 325% and nobody knows the average of that exercise. My food bill (volatile food excluded from the core inflation number - whatever that means) has increased by about 20% over the year, Electricity and water - roughly another 20%, wages over 10% and the knock on effects of these basics to run my business roughly the same increases. The unions wage demands at 12+% show they do not believe in the inflation figures either and nowhere in all the negotiations this time time round has inflation even been mentioned. SA Stats do not seem to have a clue on how to collect, what to collect or how to interpret the numbers. At the end of the day the inflation number is like an opinion - everybody has one.

So how do you target something that does not exist?

It would appear that the changing of the guard at the reserve bank was orchestrated, with too many smiles and back patting pictures. What is really going behind those scenes? Are cosatu's threats against the governments policies real or just posture? Could it be tantamount to treason or is there an underlying landscape of happy bedfellows just moving the deckchairs while they adjust the real furniture below decks?

Time will tell what these poltroons have done to the country. Hopefully it is not too late to realise that they may have taken you on a one way downhill spiral into new depths not yet considered. While the rest of the world comes out of their self inflicted recession, SA may just be going into a home made one, fueled by civil unrest, rising untargeted inflation and a communist threat where we may just find that we are no longer an emerging economy.

[Dave A]

At least inflation was down more than expected in June

South Africa's targeted consumer inflation slowed sharply to 6,9% year-on-year in June, below expectations, from 8% in May, official data showed on Wednesday.

Statistics South Africa said headline CPI inflation stood at 0,4% on a monthly basis in June compared with 0,4% the previous month.

A Reuters poll of 17 economists forecast CPI would slow to 7,1% year-on-year and come in at 0,6% on a monthly basis.

Carmen Altenkirch, a senior economist at Nedbank, said the figure was slightly below market expectations and added to the case for further interest-rate cuts.
full story from M&G here

I wonder if it will keep going down like this? Or will the way-above-inflation pay increases in so many sectors take its toll and wipe away the ground made so far?

[Dave A]

Rates may be down another .5%, but we're still in recession.

Predictions are the third quarter GDP growth may still be negative, but surely some disposable income is going to get loosened up soon with all these interest rate cuts.

[Marq]

I don't believe a rate cut or increase of any size at this stage is likely to do the trick of getting this economy going.

We need productivity, less hand outs, job creation and a few other things I haven't thought of, to get this scenario back on track. The gravy train and mismanagement of funds and assets has drained sa for now and new injection sources have to be found. We cannot keep saving what is not there to save and spending on cheaper borrowed funds without a proper future plan and confidence of a return.

The goberment needs another plan to make a decent plan to plan for an upward spiral. They need to look beyond 2010 and inspire business and international trade partners. Interest rate usage is like only using a size 2 boot to wedge open a door that should be using a size 10. Overrated by glitter wand waving economists.

[IanF]

The goberment needs another plan to make a decent plan to plan for an upward spiral. They need to look beyond 2010 and inspire business and international trade partners.

Marq
Well said but the world economy needs to grow and inspire confidence as well. There are still the problems of the twin deficits of USA which has been a problem forever so maybe it isn't a problem.
I just wish JZ would crack down more on the corruption and make examples of the traffic dofficers and their "spot" fines.

[Dave A]

South Africa's targeted consumer inflation slowed to 6,4% year-on-year in August, in line with expectations, from 6,7% in July, official data showed on Tuesday.

Statistics South Africa said headline CPI stood at 0,3% on a monthly basis in August compared with 1,1% the previous month.

A Reuters poll last week forecast CPI would slow to 6,4% year-on-year and come in at 0,3% on a monthly basis.

Mike Schussler, an economist at Economists.co.za, said the figure was a lot lower than he had expected and brought out the possibility of a rate cut.

"However, people must be a little bit careful, as I think this will be the second-last decline for CPI and inflation could head higher into the new year.
full story from M&G here

We're getting close. But are those above-inflation pay increases going to blow the trend?

[Dave A]

Two stories - August PPI inflation is down 4% and our leading indicator says we're still in recession territory.

Maybe the SARB should have cut rates yesterday

[Dave A]

Now here's a pleasant surprise.

The Reserve Bank unexpectedly cut its repo rate by 50 basis points to 6,5% on Thursday to help accelerate a recovery from last year's recession and as inflation slows.
full story from M&G here

Pretty hard to pick what might have prompted the move, though.

[murdock]

all a .5 % decrease in the interest rate means to me is that standard bank will be increasing my service fee again

[Dave A]

Pundits seem to expect a .5% rate drop at next week's Reserve Bank meeting.

The money market is signalling a 90 percent chance of a half percentage point rate cut when the Reserve Bank's monetary policy committee (MPC) meets next week.

And Ian Cruickshanks, the head of strategic research at Nedbank Capital, said he believed market players were correct in anticipating a cut, which would help out heavily indebted households.

He pointed out that bank governor Gill Marcus had listed three conditions for a further cut in the central bank's repo rate from 6.5 percent, after keeping the rate on hold at the MPC meeting last month. And all three have been met.

"The first was an improvement in inflation," said Cruickshanks. "And this condition has now been met with inflation falling to 3.7 percent in July from 4.2 in June. The second was weaker growth and the second-quarter data showed the recovery had lost momentum."

Gross domestic product growth fell to 3.2 percent in the second quarter - below the 3.8 percent estimate of economists polled by Bloomberg and the 3.6 percent estimate of economists polled by Reuters - from 4.6 percent in the first.

The third condition was rand strength, said Cruickshanks. On July 22 the local currency was trading at around R7.4 to the dollar and yesterday it was at R7.33.
full story from Business Report here

Probably a pretty safe bet, I reckon.

[wynn]

A little off topic but 'Noseweek 131 September 2010' has an article on the reserve bank that will make your hair stand on end.

[Dave A]

As predicted:

The South African Reserve Bank cut its repo rate by 50 basis points to 6% as expected on Thursday to give further boost to a stuttering economic recovery.
full story from M&G here