Expect to see interest rates rise again from around April next year. This will in turn push down house prices and increase food prices even further.
Eskom is also very likely to demand another price increase in October this year. You might recall that Eskom asked for an 88% tariff increase but settled for 31.3% for the meantime.
With the price of petrol having just gone up by 37 to 40 cents a litre, South Africa is caught up in a tsunami of inflation which will keep the country in recession for a long time. This will lead to more crime as businesses go bankrupt and workers are laid off.
****
Johannesburg - South Africa's inflation outlook is bleak. For that reason the market has priced in interest-rate hikes from the second quarter of next year.
Analysts reckon the yield curves on government bonds indicate that the short-term inflation picture remains tough.
"This year we will continue to experience the crosswinds of a weaker rand, insufficient competition (in the economy) and inflation expectations that are not properly grounded," declares Vivienne Taberer, portfolio manager at Investec Asset Management. "But as we go into next year we will see the positive effects of a stronger rand."
Taberer attributes the poor short-term inflation outlook to consumers' lower expectations in general, inter alia.
"Furthermore, interest rates cannot remain at current low levels while we are haunted by the spectre of inflation.
"Money market rates are pricing in higher interest rates from the second quarter of next year," reckons Cadiz African Harvest economist Adenaan Hardien.He says that despite lower economic growth inflationary pressure will come from the supply side of the economy.
"Where there is inflation on their supply side, and the demand side of the economy also strengthens, one gets an inflationary environment," Hardien explains. "The money market is currently pricing this in.
"All the Reserve Bank can do in this environment is to hike interest rates."
Expect to see interest rates rise again from around April next year. This will in turn push down house prices and increase food prices even further. Eskom is also very likely to demand another price increase in October this year. You might recall that Eskom asked for an 88% tariff increase but settled for 31.3% for the meantime. With the price of petrol having just gone up by 37 to 40 cents a litre, South Africa is caught up in a tsunami of inflation which will keep the country in recession for a long time. This will lead to more crime as businesses go bankrupt and workers are laid off.****Johannesburg - South Africa's inflation outlook is bleak. For that reason the market has priced in interest-rate hikes from the second quarter of next year.
2 Opinion(s):
Actually the correlation isn't that direct. Higher interest rates do subdue business, and it could prolong a recession only because it impacts on earnings. You are more likely to get stagflation, meaning zero growth and rising prices.
@VI: I didn't mean "Inflation drives up interest rates" in the absolute sense, just as a header for this particular story.
The knee-jerk reaction of the SA Reserve Bank has always been to hike the interest rate when inflation gets too high. It doesn't make sense to me either, it just means there is more carry trade which can disappear overnight at the first hint of further trouble.
Post a Comment