Rate increases don’t affect growth: Manuel

JOHANNESBURG – Higher interest rates in South Africa have had little impact on economic growth and should not result in a big loss of output, Finance Minister Trevor Manuel said yesterday.

South Africa’s central bank raised its repo rate by 50 basis points to 9.5 per cent earlier this month, resuming an upward cycle after lifting it 200 basis points between June and December last year to tame rising inflationary pressures, and high consumer spending. “Given the robust domestic economic conditions, the interest rate hikes have had little impact on growth,” he said in a written reply to a parliamentary question.”With private expectations mostly aligned with the SARB (Reserve Bank) forecasts, it means that there will be little output loss from the increase in interest rates.”Many analysts expect another rate increase when the bank’s policy committee meets again in August, with the targeted CPIX inflation measure outside its 3 to 6 per cent range for the first time in nearly four years.It measured 6.3 per cent year-on-year in April and is forecast to remain at that mark for May – in data due out tomorrow – largely due to higher food and fuel prices.Manuel said the increase in interest rates would help to prevent price pressures fanning out into wider inflation, and sustain the country’s lower inflation environment.”Pressure on interest rates should ease once the effects of higher food and fuel prices have dissipated and inflation returns to the target range,” he said.Manuel added that South African interest rates were still at historically low levels, and that the impact of the recent hikes on the retail and financial services sectors of the economy would likely be temporary.”It is however expected that higher interest rates would have the strongest (temporary) impact on consumer-oriented sectors such as retail trade …and financial institutions.”Africa’s biggest economy has enjoyed growth of around 5 per cent of gross domestic product for the past three years.Reserve Bank Governor Tito Mboweni said when announcing the latest rate increase that it appeared price pressures were becoming more broad-based, and suggested monetary policy may have entered a tightening phase.Nampa-Reuters”Given the robust domestic economic conditions, the interest rate hikes have had little impact on growth,” he said in a written reply to a parliamentary question.”With private expectations mostly aligned with the SARB (Reserve Bank) forecasts, it means that there will be little output loss from the increase in interest rates.”Many analysts expect another rate increase when the bank’s policy committee meets again in August, with the targeted CPIX inflation measure outside its 3 to 6 per cent range for the first time in nearly four years.It measured 6.3 per cent year-on-year in April and is forecast to remain at that mark for May – in data due out tomorrow – largely due to higher food and fuel prices.Manuel said the increase in interest rates would help to prevent price pressures fanning out into wider inflation, and sustain the country’s lower inflation environment.”Pressure on interest rates should ease once the effects of higher food and fuel prices have dissipated and inflation returns to the target range,” he said.Manuel added that South African interest rates were still at historically low levels, and that the impact of the recent hikes on the retail and financial services sectors of the economy would likely be temporary.”It is however expected that higher interest rates would have the strongest (temporary) impact on consumer-oriented sectors such as retail trade …and financial institutions.”Africa’s biggest economy has enjoyed growth of around 5 per cent of gross domestic product for the past three years.Reserve Bank Governor Tito Mboweni said when announcing the latest rate increase that it appeared price pressures were becoming more broad-based, and suggested monetary policy may have entered a tightening phase.Nampa-Reuters