Analysis: Evidence mounts that rate hikes are slowing economy

By Ethel Hazelhurst

Johannesburg – Evidence is mounting that recent interest rate increases are slowing the economy. Some commentators warn that a further hike could be a tipping point.

The Reserve Bank has raised its repo rate by 3.5 percentage points to 10.5 percent since June last year, and economists are debating the merits of a further hike at next week’s meeting of the bank’s monetary policy committee (MPC).

“The bank should be careful not to go too far,” said Andre Roux, the head of fixed income investment at Investec Asset Management. “The economy is slowing, as we start to feel the effects of the first rate hikes.
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Creditors’ one-way bets may be called in

By Ethel Hazelhurst

Shareholder activists are trying to make their presence felt in what is likely to become a long-running battle with one of the world’s biggest banks.

Knight Vinke Asset Management, which holds a stake of less than 1 percent of British bank HSBC, is objecting to the performance-related rewards that are likely to be paid to its senior executives next March. Knight Vinke said these payments could be substantial.

This is despite more than $20 billion (R137 billion) in provisions made for credit- and trading-related losses over the past two years. More…

Food price threat to poor may overshadow credit crisis

By Ethel Hazelhurst

Johannesburg – While financial markets are focused on defaulting debt, a more serious problem of food prices may be on the horizon.

“Over the past few months we have seen the emergence of a new threat to stability in our region: food prices,” said Peter Eerdmans, a portfolio manager at Investec Asset Management.

“And it is not just an economic threat; we have seen significant social and political fallout in Mexico and Italy,” said Eerdmans.
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Credit crunch toll to be limited

There are some early signs the credit crunch is starting to take its toll on small businesses, but the impact on the economy is likely to be limited, according to a poll conducted by the Confederation of British Industry ahead of its conference today. More…

Vehicle sales to lose speed

By Tiisetso Motsoeneng

Johannesburg – South Africa is expected to sell nearly 30 000 fewer vehicles this year, the National Association of Automobile Manufacturers said on Monday.

Total vehicles sales are expected to drop to 617 500 units from 646 556 in 2006.

Naamsa’s annual report showed the downturn is being driven by reduced sales growth in the passenger car market

The passenger car market is expected to fall by about 47 000 units this year compared to 426 812 units sold last year.
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Woolworths caught in its own spiral of consumer debt and high prices

I would like to speculate on the article, “Retail strain is showing at Woolworths” (Business Report, November 23).

For some years now I have been amazed by the large number of people using their in-house credit card when buying food at Woolworths. On a number of occasions I have quizzed checkout staff and they confirm that many of their shoppers use the card to pay for food. This flies in the face of a sound lending principle, which says that you should never buy food on credit because this is a sure road to financial distress. More…

Let rich consumers who can afford it pay for their excessive demand

The Reserve Bank is using a shotgun approach to curb inflation, hitting both rich and poor in the pocket. I suggest a reintroduction of the discontinued controls on cash deposits for hire-purchase (HP) agreements.

It is possible that richer consumers are impervious to interest rate hikes until a tipping point is reached. We could target excessive demand with statutory minimum HP deposits on designated goods.

We could also increase value-added tax (VAT) on “problem” goods. I cannot understand why consumers are expected to squeeze the inflation out of fuel and food prices when it is not induced by excessive demand in South Africa.

High interest rates curb growth and encourage carry trade, making the rand too strong to correct our trade deficit. To protect the hot money we remain hostage to our high interest rates. top.DisplayAds(‘SquarLAV’,17,553);

Let the rand depreciate so that excess demand can be mitigated through higher prices of imports.

Exports can grow, domestic production can get a respite from cheap imports and interest rates can fall while growth is maintained. We can then target inflation directly with credit deposits and VAT.

This would be a consumption tax approach, where the people who cause the problem pay for it.

John G Abbot
Rustenburg

Analysis: SA consumers to feel two-sided pinch

By Tonny Mafu

South Africans are likely to face a painful double whammy, caught between rapidly escalating fuel prices on world markets and the strong possibility of further interest rate hikes imposed by the Reserve Bank to put the brakes on inflation.

US crude oil prices hit $99.29 (R675) a barrel yesterday as a weakening dollar and lower reserves in the US nudged it towards $100.

Consumers will have to dig deeper into their pockets to find a minimum of 32c a litre extra for petrol next month. But the crunch for the country’s already stretched borrowers will be felt most keenly if the interest rates are increased, as expected. The Reserve Bank has warned that it will hike rates to fend off broadening inflationary pressures, which are, in part, fuelled by rising oil prices.
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Business in borrowing binge

By Ethel Hazelhurst

A breakdown of September credit figures shows companies are the big borrowers in South Africa.

They are borrowing more and at a faster rate than individuals, according to a Reserve Bank analysis of the DI 900s – monthly returns, submitted by the banks to the central bank’s banking supervision department.

Nico Kelder, an economist at Efficient Group, said: “The recent shift in the economy, away from consumer spending towards the production side of the economy, is becoming evident in the credit data.”
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Kelly Group recruits overseas to overcome skills shortage at home

By INGI SALGADO

Cape Town – Skills shortages were escalating the practice of companies making counteroffers to employees who resigned after being poached, staffing services firm Kelly Group said on Friday.

Attempts to retain staff by matching or beating outside offers was “happening more frequently”, said Kelly chief executive Grenville Wilson. This practice was affecting the Kelly subsidiaries that operated at the upper end of the skills spectrum.

Recruitment businesses lose commission when counteroffers succeed, as their candidates do not end up being placed.
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