South African interest rates stable for some time

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By Cees Bruggemans, Chief Economist of FNB.

SARB left interest rates unchanged today, taking the view that provided there are no significant surprises interest rates may remain relatively stable for some time.

SARB noted the improved GDP growth outlook, rising from 2.8% last year to an estimated 3.4% this year and 3.6% next year. Especially the recovery in domestic consumption spending is expected to be sustained.

Interest rates are at their lowest level in over 30 years and the real rate is below 1%. This helps the recovery in consumption spending and should stimulate domestic investment through a low cost of borrowing.

However, low interest rates on their own cannot ensure sustainably higher long-run trend growth and job creation (for which other role players in the economy should take responsibility – a deeply significant truth).

Though there are increasing upside risks to inflation (oil, food from the outside, with SARB remaining deeply concerned about Europe), inflation is projected to remain within the target range through 2012.

Thus, while vigilant about inflation and doing what it can to support the economy through the lowest interest rates in decades, SARB is indicating it is doing its level best on all fronts to assist the nation in these challenging times.

Interest rates appear to be at an appropriate level and the decision was to keep them unchanged. As there are no signs of incipient excess demand, and provided there are no significant surprises changing the outlook, interest rates may remain relatively stable for some time.

As to how long that may be, there were no hostages given to fortune, as always. Anybody’s guess, apparently.

Source: Cees Bruggemans, FNB, January 20, 2011.

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