SA says consumer exuberance tamed

JOHANNESBURG – Higher interest rates do not necessarily result in a rapid slowdown in spending, but some of the “exuberance” evident in consumer demand has been dampened, South African Finance Minister Trevor Manuel said on Wednesday.

But he warned the central bank would have to raise rates again should consumers continue to spend as they had been, particularly in an environment of rising food prices. “All I want to do is echo that it (higher interest rates) doesn’t necessarily result in a rapid slowdown …what you see is some of the exuberance being tamed,” Manuel told reporters.South Africa’s Reserve Bank raised interest rates by two percentage points between June and December 2006 to fight rising inflation and curb high consumer spending.It left the repo rate at nine per cent in February and April but warned consumers to tighten their purse strings.Robust spending has been one of the drivers of faster economic growth in Africa’s biggest economy but it has also added to inflationary pressures, although there are tentative signs demand may be tapering off.New vehicle sales growth has slowed sharply since the second half of last year, retail sales appear to be easing and credit growth – at near record levels for more than six months – dropped to 24,18 per cent year-on-year in March from 26,18.However, Manuel said should spending stay high in an environment of rising inflation, the central bank’s monetary policy committee may be forced to resume raising rates.”If people continue to spend like that …I think we are likely to see the MPC at the Reserve Bank apply its mind and there is only one instrument that they really have, that they have not used for a long time, that is, to tighten interest rates,” he said.Rising food and fuel costs have added to pressure on inflation, pushing factory gate prices higher and the targeted CPIX inflation measure up towards the upper end of the bank’s three to six per cent target band.Nampa-Reuters”All I want to do is echo that it (higher interest rates) doesn’t necessarily result in a rapid slowdown …what you see is some of the exuberance being tamed,” Manuel told reporters.South Africa’s Reserve Bank raised interest rates by two percentage points between June and December 2006 to fight rising inflation and curb high consumer spending.It left the repo rate at nine per cent in February and April but warned consumers to tighten their purse strings.Robust spending has been one of the drivers of faster economic growth in Africa’s biggest economy but it has also added to inflationary pressures, although there are tentative signs demand may be tapering off.New vehicle sales growth has slowed sharply since the second half of last year, retail sales appear to be easing and credit growth – at near record levels for more than six months – dropped to 24,18 per cent year-on-year in March from 26,18.However, Manuel said should spending stay high in an environment of rising inflation, the central bank’s monetary policy committee may be forced to resume raising rates.”If people continue to spend like that …I think we are likely to see the MPC at the Reserve Bank apply its mind and there is only one instrument that they really have, that they have not used for a long time, that is, to tighten interest rates,” he said.Rising food and fuel costs have added to pressure on inflation, pushing factory gate prices higher and the targeted CPIX inflation measure up towards the upper end of the bank’s three to six per cent target band.Nampa-Reuters