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Rand freefall, rise in interest rates possible - Economist
The events of the past twenty four hours have created an environment in which the Reserve Bank will be reluctant to reduce interest rates over the coming year, says Azar Jammine, Chief Economist, Econometrix. Depending on what newly appointed Finance Minister Malusi Gigaba says, the rand may yet go into freefall, and a rise in interest rates could be possible.
Fri, 31 Mar 2017 13:26:07 GMT
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AI Generated Summary
- The Reserve Bank is likely to be hesitant to reduce interest rates following the cabinet reshuffle, creating uncertainty about the future trajectory of interest rates in South Africa.
- The depreciation of the rand could potentially worsen, leading to inflationary pressures and impacting the country's economic stability.
- The cabinet reshuffle is expected to dampen business confidence and deter capital investment, posing challenges for South Africa's growth prospects.
The recent cabinet reshuffle in South Africa has sent shockwaves through the nation, leaving many uncertain about the future of the economy and interest rates. Azar Jammine, Chief Economist at Econometrix, has weighed in on the situation, highlighting the potential consequences of the political turmoil on key economic indicators.
Jammine expressed concern about the Reserve Bank's decision-making process in light of the recent political developments. He noted that the bank's decision to maintain the repo rate at 7% did not take into account the unfolding political events. With the cabinet reshuffle now completed, the economist believes that the Reserve Bank will be hesitant to reduce interest rates in the near future.
While Jammine acknowledged that the current depreciation of the rand has been relatively subdued, he warned that the currency could potentially plunge into freefall depending on various factors, including the statements of Finance Minister Malusi Gigaba. The uncertainty surrounding the political landscape has kept the possibility of a rise in interest rates on the table, although Jammine stressed that it's not an immediate concern.
One of the key concerns raised by Jammine is the impact of the cabinet reshuffle on business confidence. He predicted that the business community would view the reshuffle as further entrenchment of state capture, leading to a decline in business confidence and capital investment. The economist expressed distress over the potential negative consequences on South Africa's growth prospects, signaling a challenging road ahead for the economy.
Despite the bleak outlook, Jammine also highlighted a potential silver lining in the current situation. He suggested that the political turmoil could serve as a catalyst for much-needed change in leadership, which might ultimately lead to an improvement in the economic environment. However, he cautioned that some may argue that conditions need to deteriorate further before substantial changes can take place.
The uncertain political landscape and its impact on economic indicators have left many observers and investors on edge, waiting to see how events unfold in the coming days and weeks. The future trajectory of South Africa's economy and interest rates will largely depend on the decisions made by political leaders and the response of the business community to the recent developments.
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