A grovelling note to the Governor: We are in trouble
Belated congratulations on your reappointment as head of the SA Reserve Bank.
Those who either choose to ignore, or fundamentally do not understand your pivotal role in the economy, want you to become the nation's piggy bank, for you to create money out of thin air to help us through our growing economic troubles.
I accept that is not your job - besides Zimbabwe-style “quantity-easing” (sic) would put us on a hiding to nothing. We won’t reduce our problems without taking some serious steps toward changing the structure of our economy.
Cutting rates won’t provide the growth we need, but may give us a small much needed collective spring in our step.
Our collective sense of self-confidence is at rock-bottom and needs a boost.
Slashing interest rates, as you know, may produce a nice lift to consumption, but does little to encourage jobs-rich growth and will likely increase the debt burdens of many desperate South Africans. It may ultimately drive up inflation, further eroding the value of the currency which you are mandated to protect.
What South Africa does need, however, is a confidence boost. As much as I would like you to cut rates this week by 50 basis points and promise another two big cuts by year end (that December holiday isn’t going to pay for itself), I accept you can’t and won’t do it for fear of the inevitable inflationary consequences.
But the reality, Governor, is that inflation is benign.
There is so little demand in this economy that the official inflation rate is showing no risk of a surprise jump.
Some 18 out of 22 economists polled this week by Bloomberg believe you will trim rates by 25 basis points this week.
Its effect on the economy will be negligible. What would help is if you could indicate whether you intend further cuts. That will come, of course with further warnings about threats to the global economy and how we need to be transparent, conservative and predictable in the face of possible shocks.
But the world is in a rate-cutting mood.
Global growth is slowing and as the US heads towards an election year, President Donald Trump is putting enormous pressure on the Federal Reserve to boost demand through making money cheaper.
At least you do not have that problem. Our president appears wedded to your independence and understands your credibility underpins his chances of navigating this country out of its worst crisis since the early 90s when confidence truly collapsed.
There are real pressures in the economy.
Retailers tell me the extra percentage point in VAT added in February last year, had a surprisingly big impact on demand. It’s contributed to the vacuuming of cash out of stretched household budgets, and to paraphrase Post Office CEO Mark Barnes: “people are hurting each other for food”.
We’re in trouble, and while you cannot be the nation’s paramedic - you can be part of the larger surgical team required to nurse the economy back to life.
Slashing interest rates is not the answer, but people are increasingly desperate.
Begin the rate cutting cycle this week, Governor.
Give business the sense of optimism it needs to start thinking about expansion. Its mindset now is all about contraction and risk reduction.
Let business feel like its cost of capital will reduce and the value of cash on its balance sheets is better invested in growth assets than preserved in a low-rate bank account, and perhaps, just perhaps, the economy might get a pulse.
Right now the patient is dying.
Bruce Whitfield is a multi-platform award-winning financial journalist and broadcaster.
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