Interest rates need to stay on hold
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2010
Tue
09
Feb
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Economic commentary by Luke Doig, senior economist at Credit Guarantee Insurance Corporation
Talks of hiking interest rates at this stage are ludicrous. Indeed murmurings are that the inflation target band may well be widened somewhat to accommodate the debilitating electricity price increases. Inflation is likely to fall decisively within the target guidelines within the first quarter, even with a large Eskom hike.
The latest Reuters Econometer has consumer inflation below 6% for the next three years, albeit with outcomes very close to the upper band. Consumer and business confidence remains fragile and even any possible income tax hikes will only serve to dent this further.
Australia escaped outright recession in the downturn and was the first major economy to hike rates after their initial softening stance; however they have recently put their tightening approach on hold. There is also no certainty that local job losses have been stemmed.
With hopes of a nascent recovery becoming more entrenched by mid-2010, everything possible should be done to support the local economy in the face of global concerns. At worst, interest rates should stay on hold.
Source: Corporate Communications Consultants (Pty) Ltd
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