For most people, when the Reserve Bank (SARB) leaves interest rates unchanged, as it did last week yet again, the decision appears fairly insignificant. Some times this is the case, but that depends on how the borrowing/lending situation is changing, because rising indebtedness means higher debt servicing costs should the SARB merely do nothing.
In 2010 the average CPI inflation rate bottomed at 4.3%, before rising to 5% for 2011 and then further to 5.6% for 2012. As at December 2012, its year-on-year rate was 5.7%, teetering on the edge of the SARB’s upper inflation target limit of 6%. In addition, in her statement the Governor warned of “upside risk” to inflation forecasts, and a possible temporary breaching of the target limit this year. For some time now, she has also warned specifically against “home grown” inflationary pressure in the form of high wage demands. Therefore, unless the bottom falls out of the global economy, this would seem to limit the probability of any further interest rate reduction [..continued..]