30 November 2007
	Wounding the economy Jeremy Berman, Houghton

Just when the economy looks like it is slowing down - car sales moving into negative territory, manufacturing growth almost non existent, retail sales slowing and liquidations on the rise - our Reserve Bank Governor, Tito Mboweni, wants to hurt the consumer a bit more. The funny thing is, he could hike rates another 200 points and it wouldn't have an impact on inflation, given that the major contributors are external factors out of his control - namely, oil and food prices. We know oil is at a new high and that energy costs are on the increase, and that food inflation is no longer a purely domestic issue as prices are now determined in the international market. So why hike another 50 points? Most new home loans were taken at the lowest prime rate of 10,5%-11%, and most of the banks don't offer competitive fixed products, so the mortgages were taken out at a floating rate. As in the US, the poorest section of the population feels the brunt of the interest rate hikes, with home liquidations up to record levels this year. Another 50 basis points could lead to our own sub prime crisis. With conduits having bought paper linked to home-loan repayments, and bad debts on the books of all major banks on the increase, cash may be the new king in a few weeks. Given that our country has 25% unemployment and a growth target of 6%, should we not find other ways of slowing spending than by hiking rates?