Interest rates hike will further slow economy

Business Unity South Africa (BUSA) stopped short of labelling the decision of the South African Reserve Bank (SARB) to raise interest rates as an economic destruction.

In a statememnt released today, a day after SARB governor Gill Marcus announced a 50 basis point in interest rates, BUSA said it regrets the decision.

BUSA said it “regrets that the SARB has found it necessary to increase interest rates by fifty basis points yesterday, even though it appears that the Bank took the decision reluctantly.”

The statement attributed to BUSA Special Policy Adviser, Raymond Parsons, added that “Whatever the understandable reasons for the Bank’s decision, BUSA believes that – given the current weakness in the economy and the sluggish economic outlook revealed by the SARB’s own assessments – the rise in interest rates will inevitably reduce growth and net job creation in 2014. BUSA considers that it may now be necessary to cut its present forecast of 2.8 per cent growth in 2014 and even possibly its growth expectations for next year.”

The business lobby group added that “The prospect of rising interest rates, contrary to longstanding consensus forecasts of flat interest rates well into 2014, also comes at a time when both business and consumer confidence are low.  It is clear from the SARB’s assessment that industrial unrest and strikes are exacting a high cost from the economy and are aggravating the large deficit on the current account of the balance of payments, and hence impacting on the exchange rate. This highlights again the urgent need to collectively seriously tackle the structural challenges in the SA economy which inhibit a better economic performance.”
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