[I am not buying any of what Mboweni says. Firstly, this country has been on an unparalleled credit splurge the likes of which it has never known in its history. That should already set the alarm bells ringing. Secondly, now that this MONSTER has been unleashed, there have to be some consequences – cause-and-effect. And how will they curb this monster? Either with interest rates OR… we have very high inflation. How will they stop this?

I think… Interest Rates and Inflation should be watched. If the one does not bite us, then the other one will. And I do not, for one second, buy the line of a “soft landing”. We’re heading for a hard landing. But keep these words in mind. My bet is that Mboweni will be eating them. I expect there will be a real debt crunch in the coming years. I have been wondering whether our BANKING SYSTEM isn’t going to be EXTREMELY HARD HIT in the years to come – in a way like it has never experienced before – ever. So keep watching the results of Mbekinomics. It could be fun. Jan]

Interest rates should be adjusted “in an orderly fashion” to ensure the country’s economy experienced a soft landing rather than a hard one based on “kragdadigheid”, said Reserve Bank governor Tito Mboweni yesterday.

His comments could explain the Bank’s monetary policy stance, which has so far done little to curb consumer spending despite two interest rate hikes since June this year.

Last week the Reserve Bank reported that private sector credit extension growth continued to climb to a dramatic year-on-year figure of 25% in August from 24,8% in July.

This suggests that a tighter monetary policy has not yet acted as a restraint on consumer behaviour.

Mboweni’s cautioning over the need for “orderly” interest rate adjustments also gave some indication of his thinking ahead of next week’s monetary policy committee meeting.

Inflation was a concern to the Bank, Mboweni said, especially as the producer price index had risen and CPIX (consumer prices less mortgage costs) at 5% was creeping upwards to the upper end of the inflation-targeting band of 3%-6%.

“We should be a little bit concerned about this,” Mboweni said during an address at a South African Institute of Chartered Accountants’ function for trainee accountants.

Economists generally expect another interest rate rise of half a percentage point, with a similar hike expected in December.

Mboweni’s comments on the “orderly” manner in which the rand had adjusted to SA’s “very large” current account deficit caused the rand to weaken late yesterday after early morning strength.

The rand has fallen 19% against the US dollar this year. The unit settled to R7,76 to the dollar in mid-afternoon trade yesterday after earlier gaining to R7,70 but later recovered to its former level.

The exchange rate was the mechanism for sorting out imbalances in the current account, Mboweni said.

He noted that the current account deficit of 6,1% of gross domestic product (GDP) in the second quarter was more than double the internationally accepted rule of thumb of 3% of GDP that was regarded as manageable.

Mboweni said the Bank planned to investigate the possibility of approaching mortgage interest rates along the lines of a “fixed mortgage system” so that bond repayments were more independent of the volatility of prime interest rates.

“Maybe we did not think through this thing very well in the beginning because whenever we implement monetary policy changes, the first impact is on mortgages. This is important in SA today, given the fact that there are so many people who hitherto had no assets or property and now want to get into the property market.

“This volatility of interest rates is not of help to them at all.”

The central bank governor said the problem had been discussed at the Bank’s strategy meeting at the weekend.

Source: AllAfrica.Com
URL: http://allafrica.com/stories/200610030448.htm…/p>