It is not widely realised just how out of step with international trends SA’s interest rates are. In the UK, US and Europe, interest rates since the 2008-09 financial crisis have been consistently low, coupled with massive monetary easing, to promote growth, confidence and recovery. This has worked very effectively.
In the UK, for example, CPI inflation is at 2.5% and even after a rise last month, the prime commercial bank lending rate is 1.75%. In SA, CPI inflation is 5.05% and the prime overdraft rate is 10%, with the Reserve Bank hinting at future hikes. The Bank of England’s equivalent of the repo rate is 0.75%, compared with 6.5% here.
SA’s dismal decade of low or nil growth is not only due to state capture and corruption. Maybe the Reserve Bank is a prisoner of the weaker rand, requiring these extraordinarily high rates, but any attempt to stimulate the economy is doomed without a change in this interest rate pattern.