SARB to keep rates unchanged

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SARB to keep rates unchanged

The SA Reserve Bank will keep rates unchanged in 2012, Investment Solutions economist Chris Hart said on Tuesday.

Speaking at a briefing in Johannesburg, Hart added that central banks faced a dilemma of whether to give their attention to slowing growth or rising inflation. 

There had, however, been a universal easing of monetary policy, which would, he said, extend into 2012. 

"Central banks have ridden to the rescue by cutting rates and flooding the system with liquidity - but even with this enormous amount of stimulus, growth has been slowing and inflation has started to become elevated." 

Hart said that at the beginning of the month, the European Central Bank had cut rates as higher rates were seen as an obstacle to growth. 

"However, it's not high rates that are the problem - maybe rates are too low because inflation is too high to make saving worthwhile," he continued. 

"Central banks seem to have forgotten that savings are an important part of driving economic growth. 

"How much longer must Japan go on with zero rates before it realises that low rates are an obstacle to growth?" he asked. 

"When rates are too low, there's no funding for growth and that's where SA is. With a repo rate of 5.5%, we can't get growth going and it's not because of interest rates." 

In the developed world, interest rates had become counterproductive, according to Hart. 

"Policy makers haven't picked up that after four decades they cannot attack savings and replace them with debt because the systemic risk starts to rise if you're fuelling growth with debt." 

At the moment, central banks were not going to respond to inflation. 

"They're thinking in terms of growth and this will give the SARB comfort to keep rates unchanged for the whole of 2012." 

 


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