From the news desk

Roodt says increased interest rates will hurt the South African economy

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By Kouthar Sambo

“The reason why the South African Reserve Bank has decided to increase interest rates, is because they want to dampen the demand in the economy, and this is a very blunt instrument. It is going to be very painful and bad for the economy and going to result in slower economic growth.”

This is according to Economist Dawie Roodt, who went on to say that lower interest rates will result in high levels of inflation, therefore leading to weak economic growth.

“The South African Reserve Bank, like most central banks in the world, is an independent institution in that politicians are not supposed to interfere. Reserve banks have a certain mandate and their job is to make sure inflation remains between 3% and 6%,” says Roodt.

What happened the last couple of weeks, explains Roodt, is that the “political missteps” is the result of a deteriorating currency, which in turn, filters through to higher inflation.

Roodt further elaborates by predicting that the reserve bank will increase interest rates by another 50 basis points.

“Remember, if the reserve bank increases interest rates, it doesn’t mean that inflation will start falling next month. It takes as long as two years for a change in monetary policy – not only monetary policy, but any change in the economy can take up to two years to filter through to the economy,” explains Roodt.

“There are two important aspects: the reserve banks increase their interest rates to mechanically push down inflation eventually (it takes some time). The second thing is by increasing interest rates, the reserve bank is trying to affect inflation expectations and at the moment people expect inflation to be higher in the future, ” he added.

It goes without saying that the most recent saga surrounding the United States Ambassador to South Africa, Reuben E Brigety, who has, according to international relations and co-operation (Dirco), apologized for “crossing the line” at a briefing and while the accusation by Brigety is not the ultimate cause of a weak economy, it has hindered economic growth exponentially. This apology, however, cannot reverse the detrimental impacts left on the South African economy.

Roodt however, added that poor political choices are still a huge contributing factor.

“I read an article saying that some of our roads in South Africa are disintegrating because of the lorries which are not supposed to be on the roads. The loads should be on the trains but the trains aren’t running properly because of mismanagement, and who is in charge of trains? Government. And who is government? ANC. The result is that the price of things keeps on going up because it is expensive to transport goods on the roads, and that creates an uncooperative environment in South Africa,” added Roodt.

Photo: Unsplash

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