Reserve Bank urged to take a bold step & increase rates

Economists believe it’s in SA's best interest if the Reserve Bank increases rates by at least 50 basis points.

FILE. Economists believe it will be in the country’s best interests if the Reserve Bank increases rates by at least 50 basis points. Picture: Christa Eybers/EWN.

JOHANNESBURG - Economists believe it will be in the country's best interests if the Reserve Bank increases rates by at least 50 basis points.

The bank's Monetary Policy Committee (MPC) started its meeting yesterday and will conclude with an interest rates decision on Thursday.

The rand has also weakened since the last MPC meeting in November, leading to expectations that inflation will be worse than forecast.

Some economists predict that the Reserve Bank will raise interest rates by 25 basis points, but say this is too low.

Nedbank economist Isaac Matshego says with the weakening rand, the Reserve Bank needs to take a bold step.

"The Reserve Bank cannot keep on raising by a quarter percentage point. This time around they can raise by around half a percentage point, so that they can avoid having to take more drastic action later."

Economist Dawie Roodt agrees and says an increase in rates in necessary.

"Inflationary pressures are undoubtedly building up in the South African economy. We need to increase rates to prevent inflation from getting out of hand."

Roodt says an increase in the interest rate may also support the exchange rate.


Meanwhile, ratings agency Standard and Poor's has issued another warning over South Africa's economic prospects.

This week's the agency's sub-Saharan Africa Rating Trends for 2016 report indicated South Africa is headed for a tough year.

Last month, Standard and Poor's warned e xtremely low economic growth and other concerning factors could lead to a downgrade.

Ratings agencies are watching South Africa closely for any political or economic missteps, which could see the country being downgraded to junk status.

Warning lights have again flickered with Standard and Poor's cautioning that the bailout of state-owned enterprises, along with weak growth could see South Africa miss its fiscal targets.

The agency's report indicates this will further widen the gap between South Africa's spending and income.