[Mboweni increased the interest rate by .5% today. That means this year interest went up 2%. Most economists agree it will need another 0.5% to 1% increase at least next year. But I ask WHETHER THAT WILL BE ENOUGH FOR THIS OUT OF CONTROL CREDIT EXPANSION?

What concerns me is that this current fake boom was caused by MASSIVE CREDIT and virtually everyone is heavily in debt. Probably 90% of the cars on the road are bought on credit… and with the increase in house prices, people went and borrowed even more on their homes in order to buy: Cars and even to go on holiday.

So in my view, with debt flying out of control at levels never known before, what prevents us from seeing 25% or even 30% interest rates in the years to come? We’ve seen 25% before!

On the other hand food inflation is rising and not coming to an end – surely this is the result of ANC messing with agriculture?

So I am wondering if we aren’t heading for a serious credit crunch in the next few years? I tend to discount all Govt “assurances” that everything will be fine. Govts lie to keep people calm. And our Govt lies more than any other!! Jan]

Johannesburg – South African Reserve Bank (SARB) Governor Tito Mboweni’s words in mid-November that South Africans needed to tighten their belts came home to roost on Thursday when he put a dampener on the Christmas spirit by raising the repo rate by 50 basis points to 9%.
In mid-November he sent a strong message that this rise was coming when he said that if in the view of the Monetary Policy Committee (MPC), the inflation target was being threatened by inflationary pressures, the MPC would have the courage of its conviction to do the correct thing even as South Africa entered the festive period.

On Thursday he followed through via another 50 basis point rise, taking the current increases since June to 200 basis points.

Mboweni delivered another hawkish address on the inflation outlook on Thursday, picking out the continued high demand for credit and resilient consumption patterns as major blights on the future inflation outlook. The usual suspects, food and volatile oil, were again raised as key concerns going forward.

He added in November that his message was still that South Africans should all try to tighten their belts, and the general tone of his speech on Thursday was that more of the same was required before the tightening cycle could be halted.

Poor economic data

The recent spate of poor economic data, including unexpectedly strong credit growth at 27.5% and a leap in PPI inflation to 10%, had raised particular concerns last week that the tightening cycle could last past February next year.

A survey of 12 economists by I-Net Bridge had found that the consensus forecast was for a 50 basis point rate hike.

Only one of the 12 economists surveyed expected a 100 basis point increase, while economists were generally divided as to whether the current tightening cycle would end with one, two or more hikes after December.

Market players said that the tone of Mboweni’s speech on Thursday would be all important for them, in particular his views on the appreciation of the rand.

About the rand, Mboweni said that the rand volatility posed risks to the inflation outlook due to the related uncertainty. He said the rand was now at around R7.10/US$ from R7.70 at the previous MPC meeting.

Resilient consumption

The SARB releases third quarter balance of payment (BoP) data in its quarterly bulletin on Friday at 11:00, but Mboweni intimated on Thursday that the current account, while high, was still being financed by portfolio inflows.

Portfolio inflows of late have been more than sufficient to offset the large current account deficit of 6.1% of GDP, which rose as high as 6.4% of GDP in the first quarter.

Foreign direct investment into South Africa recorded an inflow of R3.207bn in the second quarter of 2006 from R8.419bn in the first quarter.

But while the BoP position may look okay due to the inflows, other concerns still weigh on the SARB, highlighted again on Thursday as continual bugbears, ranging from resilient consumption, low savings, surging PPI inflation to 10% and still-high consumer inflation.

The 50 basis point increase takes the repo rate to 9% and will take the prime overdraft rate to 12.5%.

The repo rose as high as 13.5% in September 2002, before receding to 7% in April 2005, with the current tightening cycle beginning in June 2006.

Source: Fin24
URL: http://www.fin24.co.za/articles/default/displ…/p>