The economic stress and joblessness that South Africa has endured over the past two years has been a difficult time for its locals. Things seem to be picking up in terms of consumer spending but there is still a way to go before the country is as it was a few years ago.
The International Monetary Fund (IMF) has given the country some bad news; South Africa’s economy is too weak for it to feasibly raise interest rates.
According to Mariam Isa, South Africa’s slow job creation and lack of inflation pressure has resulted in the SA Reserve Bank having to hold the interest rates at a steady number.
Isa reports that IMF’s assessment of South Africa’s situation is in contrast with local markets, which believe a rise in interest rates is probably in September and certain in November.
In comparison to the projected growth rate for sub-Saharan Africa of 5.5 per cent, South Africa’s expected 3.5 per cent increase is disappointing. The low number reflects the country’s general weak domestic demand and slow investment rate.
Over the past two years South Africa has suffered substantial job losses. According to Nasreen Seria, the IMF stated that the country’s central bank needs to keep interest rates low because the economy’s recovery is not strong enough to alleviate the job losses. The Reserve Bank has kept the benchmark rate at 5.5 per cent, which is a 30 year low.
Seria reports that while this rate will ensure inflation remains within its three to six per cent target range, food and fuel costs are rising, which may force the bank to raise its rates.
The IMF told Seria that policymakers need to be alert to inflation pressure because of rising commodity prices. According to the IMF, inflation will most likely average around 4.9 per cent this year and 5.8 per cent next year.
Consumers are starting to spend more but that hasn’t reassured the confidence of manufacturers. They are still hesitant to commit to investments, which undermines the recovery of the economy. In order for the government to reach its target of creating five million jobs by 2020 it needs an annual six per cent economic growth.
But the IMF’s senior representative, Alfredo Cuevas, said that the gap between the actual and potential growth rate for the economy is still too wide to justify hiking the interest rates. He added that price pressures with regards to food and fuel may ease later this year.
But it is not only South Africa that is experiencing economy issues. The IMF commented that global financial situations are currently fragile. Thankfully, however, the fears of a double-dip recession have not yet come true. The IMF says it will reassess the South Africa situation in the next world outlook in November.
(Image by kikashi, stock.xchng)
Its absurd to keep interest rates so low. No person will save at this rate. That is why we have a debt ridden world. Low interest rates cause people to spend like its going out of fashion. They dont spend their own money but the monew which they borrow from the savers who must be satisfied with a pittance for their money they invest. The middle men such as banks are ironically laughing all the way to their own banks. Ha ha ha!
Agreed, but it’s also the pensioners and people who rely on interest income to live that really concern me. These are people who have generally been very good about saving and planning for their retirement and then they get shafted. It’s not fair.