BRIAN KANTOR: Message for the Reserve Bank — act on interest rates now
When Zuma intervenes in the Treasury, alarm bells go off — in the market place and at the credit ratings agencies
When President Jacob Zuma intervened in the Treasury, alarm bells were set off in the market place and at the credit ratings agencies. The danger is that fiscal conservatism in SA — the willingness to fund government spending without printing money— will be sacrificed to other interests, making the government more prone to raising loans from the central bank rather than raising additional revenue or issuing more debt. And when a government borrows heavily from its central bank and spends the proceeds, it adds to the money supply. This usually brings more spending, more inflation and a weaker exchange rate in its wake. Zuma interfered initially in December 2015. The negative impact on the South African bond and currency markets was immediate. The spread between South African bond yields and their US Treasury equivalents widened dramatically by close to an extra 2% per annum to 8.14% per annum. This 8% per annum a became the faster rate at which the rand was expected to depreciate aga...
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