October 14, 2003

By Audrey d'Angelo

Cape Town - The rand would remain strong and a series of interest rate cuts would help the economy to grow by stimulating consumer spending, Brian Kantor, a professor of economics at the University of Cape Town, said yesterday.

He told delegates to the annual Rode conference on property that South Africa was entering a period of deflation. He expected further cuts in interest rates, which would bring more money into the system.

"We have got deflation in the prices of imported goods and are close to it in prices of locally produced goods."

Businesses must accept they could no longer plan their budgets on the basis of higher inflation and a weaker rand. The solution was to cut costs by giving lower wage and salary increases.  

Kantor said management would be as reluctant as the unions to accept this because they would not want their own salary increases and bonuses to be smaller.

"On this matter they are in bed with the unions."

But both sides must accept the need to keep wage and salary increases down or squeeze operating profits and lose jobs.

Praising the conservative policies of the minister of finance and the Reserve Bank, which had brought inflation down, Kantor said the government could spend on infrastructure without printing money.

"The big question now is how soon will South African business get its budgets in order."