12 December 2008
	Give us a break, lower rates L A Davies, Saxonwold

This week the Reserve Bank will make a decision that will affect the lives of all South Africans when it considers whether to adjust interest rates. Policy in recent years has been to curtail the level of inflation by increasing interest rates. Inflation went out of control because of a number of factors, not least the level of credit being utilised by industry and the private sector. Even today the increase in credit is far in excess of what it should be, despite high interest rates. Inflation has in the main been influenced by the high price of oil (over which we have had no control) and food. The effect of this has been excessive demand for credit by both industry and the private sector. It has resulted in permanent damage to the economy and the individual. People have lost their jobs, many have lost their homes and other assets. What a terrible price to pay - they won't recover. Globally, industry is in major decline, with hundreds of thousands losing their jobs. Countries worldwide have responded to the challenge. Interest rates have been slashed to try to stem the rapid decline in economic activity. Prices of basic raw materials have halved in many cases, and the price of oil has fallen from US$140/bbl to less than $45/bbl. Fortunately we have felt the positive impact of lower petrol prices, which have helped the country offset other negative factors. Now we await the decision of the Reserve Bank governor. Will he take the bold decision the country needs and reduce interest rates by 2% or 3%, or will we yet again be subjected to the usual 50 basi s points reduction? We have been advised that the new criteria for measuring inflation from next month will reflect a 2% reduction in the level of inflation, so we must take bold decisions to minimise economic hardship. It is time the Bank made the decision the country needs, to reduce the hardship being experienced by individuals and industry and reduce interest rates by 2% or 3%. If interest rates are decreased, this will not result in an increase in the credit levels but rather help in repaying debt. Is the Bank up to the challenge?