Rate hike still on the cards

Posted On Thursday, 21 February 2002 03:01 Published by
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Several economists agree that an interest rate hike will still be necessary later in the year, despite several positive announcements in the Budget speech.
Several economists agree that an interest rate hike will still be necessary later in the year, despite several positive announcements in the Budget speech.

Johannesburg - The Budget puts the focus on the relief of poverty by means of sustainable economic growth rather than higher welfare payments, Rand Merchant Bank chief economist Rudolf Gouws said on Wednesday in response to the Budget.

He welcomed the fact that no new taxes were announced, while the Minister was able to ease direct personal tax.

Gouws says it is still essential for company tax to be lowered further in future Budgets.

He expects interest rates will have to be increased later in the year, but should start falling again before the end of the year.

Brait economist Colen Garrow described the Budget as investment-friendly. The focus falls on growth, which may force credit rating agencies to review the country's investment and credit ratings.

Absa chief economist Christo Luus welcomed the fact that total income as a percentage of the gross domestic product (GDP) is expected to fall back from 26% to 25.4%, as this will ease the total tax burden.

Absa's growth expectation for this year may even by 2%, instead of the 1.7% now expected. The 6.9% CPIX inflation figure forecast may be too conservative.

'The Budget does not alter our view on interest rates in the short term. A greater demand in the economy will still lead to a 1 or 2 percentage point increase over the next 12 months, with possible declines in 2003.'

Sanlam Investment Management chief economist Jac Laubscher says there is little doubt that the Budget should be seen as expansive.

'Unfortunately this will inevitably mean interest rates will have to be raised by 1 percentage point in March.'

Publisher: News 24
Source: News 24

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