ECONOMY
BRIAN KANTOR: A rate cut will lead to demand and growth
What can be done to reverse the vicious cycle in which SA finds itself — the slow growth that drives capital away, weakens the rand and adds to inflation?
SA’s GDP in the second quarter of 2018 — announced on September 3 — was disappointingly smaller than the quarter before. The news sent the rand weaker and the cost of servicing SA debt higher. Some of the weakness in the dollar-rand exchange rate and weakness in the rand compared to its emerging-market peers has been reversed in recent days. As has the upward pressure on SA and emerging-market risk spreads. The market logic that sent the rand weaker and spreads higher on the GDP news seems clear enough. Slower growth drives capital away from the economy helped by the rating agencies that are expected to officially downgrade SA’s credit ratings. The weaker rand adds to inflation and is thought likely to lead the Reserve Bank to raise short-term interest rates. Adding higher interest rates to higher prices is a recipe for still slower growth. What can be done to reverse the vicious cycle in which SA finds itself — the slow growth that drives capital away, weakens the rand and adds to ...
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