South Africa's central bank may take
action this week to spur the country's economy and avoid a recession. On
Thursday, Reserve Bank Governor Tito Mboweni is expected to announce a cut in a
key interest rate, possibly by as much as one percent.
those following developments is David Shapiro, vice-chairman of Sasfin
Securities. From Johannesburg, he spoke to VOA English to Africa Service
reporter Joe De Capua about the likelihood of a major cut in the rate, which
current stands at 11.5 percent.
still uncertain. I think the market is discounting one percent. I think half a
percent is in the bag. But I think the economic indicators that have come out –
if we look at the state of the global economy – there's no reason why…the
central bank governor can't accelerate the rate cut and give us one percent,"
says South Africa's economy has slowed down and there are some risks lying ahead
that could prompt Mboweni to act.
concerns him," says Shapiro, "is no longer inflation, even though our inflation
rate is pretty high, it's going to come down quite dramatically into the
future…but the worry is the currency. And I think that he needs to maintain the
currency at a reasonable level and not allow it to weaken too much. Otherwise,
it is inflationary…. Although it's not his mandate to look at the rand, he's
got to keep a fair balance between the currency and the economy."
a balance not easy to maintain. Shapiro says, "It's very, very difficult to
manage and I think anybody who's in the currency market can quickly lose their
reputation by making forecasts. So, I think that there is still a very positive
interest rate here for people who are looking for high yield.… It has been one
of the attractions for foreign income to flow in here. If he reduces interest
rates too much, we could have an outflow of that capital."
the United States and many other countries are in a recession, Shapiro says, so
far, South Africa is not.
think that our finance minister…has gone on record as saying that we will not
go into a recession," he says.
Africa's financial institutions did not fall prey to the same practices that
damaged or ruined many US financial institutions.
banks have managed themselves considerably better than foreign counterparts.
And part of the reason is that we introduced an act called the National Credit
Act, which controlled the issuing of credit. Therefore, our banks were much
better behaved," he says.
South African banks will increase the amount of bad debts they have, such as
falling property markets, Shapiro says the debt is "manageable and it's not
going to throw banks into the red."
Africa may feel the effects of the global economic crisis in the commodities
sector. 'We're a big commodity exporter and commodity prices have halved over
the last year. So, we are going to feel strain in that area and we're likely to
let go a lot of jobs in that area. Manufacturing has also come down," he says.
his outlook is upbeat. "Where South Africa has an advantage is that about four
years ago, we announced an infrastructural development program…. We started to
put money aside to spend on infrastructure, not only to increase our productive
capacity and industrial efficiency, but also to create jobs. And that's in full
swing now," he says.
He also sees some benefit from next
year's World Cup, which is being held in South Africa. Shapiro says the World Cup
has "fast tracked" a number of infrastructure projects. Also, the influx of
football fans is expected to give a short-term boost to the economy next June