Rates Watch July 2015: Just Do it!

The CPI figures for June are out and, at 4.7%, they are better than predicted. With inflation ticking up relatively slowly, May having clocked in at 4.6%, this positive surprise suggests that the SARB will once again leave the interest rate unchanged at tomorrow’s MPC announcement. With inflation within the target band of 3% – 6% and nothing positive happening in economic growth or consumer debt the SARB has little incentive to inflict the pain of an increase on us at this point.

But I would argue that they should act now and raise the rate by 0.25%. Despite warnings and previous rate increases consumer debt has ballooned and shows no signs of shrinking. Consumers are not taking the hint and the SARB can no longer forestall the inevitable for their sake. The rate should be increased now to pre-empt the very likely September rise of the US Interest rates which will further undermine the Rand which will impact the price we pay for energy (oil) which in turn will cause inflation to sky rocket.  We might find ourselves facing the double shock of a crippled Rand and fuel that commands a higher dollar price. A steady, predictable rise is far more desirable than sudden increase which may frighten already jittery investors.

As always the role of the SARB is an unenviable one: when it comes to the economy it is the organization most in the public eye and the least able to exert any real change. The problems South Africa face cannot be solved by flipping the ‘interest rate switch’. These problems are created by external forces and the South African government’s policy bungling and failures only serve to exacerbate the situation.

So, c’mon SARB. Yesterday you said “Tomorrow”. Just DO IT. Increase the rates!

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