Rate hike of proof of Reserve Bank independence

Comment on this story


Yesterday’s decision by the Reserve Bank’s monetary policy committee to increase the interest rate by 50 basis points is proof that the bank is, as it is supposed to be, independent of the government, which should be applauded.

As pointed out in this column yesterday, the committee faced a dilemma over the decision it would take on interest rates because any hike would dampen economic activity at a time when the economy is not overheated, but struggling to achieve a growth rate that can maintain current employment levels, never mind helping to reduce the high unemployment rate.

In addition, it was stated that no ruling government would like the prospect of going into an election when the economy was heading south, the currency was depreciating, inflation and interest rates were rising and unemployment worsening.

Compounding this issue is the consumer-sensitive petrol price, which increased by 39c a litre earlier this month. The average under-recovery in the retail price to date this month is increasing daily and running at about 34c a litre, making the prospects of another steep increase in the price early next month a certainty.

This is the environment in which the government must now contest a general election. The reality is that it was the inflationary effects of the sharp depreciation of the rand that forced the Reserve Bank’s hand on interest rates.

The depreciation of the currency, on the other hand, has been partly caused by the large current account deficit, which has left the currency particularly vulnerable to capital outflows.

Considering the pressure on the government to respond to the spate of service delivery protests, possibly even before the election, and other pressing demands being made on the fiscus, it is unthinkable under these circumstances that there will be any “sweeteners” in next month’s Budget in an attempt to make the government more palatable to the electorate.

Platinum strike

Platinum producers have to brace for the worst-case scenario if the suggestion by Johnson Matthey, the UK platinum research organisation, that the country’s platinum strikes risk damaging long-term demand because disruptions are pushing industrial users to seek alternative metals.

“If I was a miner I’d be concerned,” Robert Macleod, a finance director at Johnson Matthey, said in a Bloomberg report yesterday.

“If you have big price spikes, you’ll see substitution. That market can close forever. The damage is that you end up causing a reduction in end demand.”

Autocatalysts accounted for about 40 percent of the platinum output in 2012 and platinum’s stable properties at high temperatures make it hard to replace in automotive catalysts. But there was more scope for substitution in electronics, an analyst told Bloomberg.

Platinum is used mainly for the production of jewellery and autocatalysts – the emissions control devices that are inserted in vehicle exhausts to convert toxic emissions into less harmful gas.

The tight emissions control laws set to kick in in Europe from September are expected to boost demand for South Africa’s platinum products.

A lot is at stake should industrial users replace platinum with another metal, which would not be good news.

South Africa, as home to 70 percent of global production and 80 percent of the world’s known platinum reserves, has been excepting a recovery in the long term.

Since last Thursday, strikes have halted production at Anglo American Platinum, Impala Platinum and Lonmin, the world’s three majors.

About 70 000 members of the Association of Mineworkers and Construction Union downed tools to demand a R12 500 minimum wage, which the mining companies say they cannot afford.

The sector is still recovering from a six-week strike in mid-August 2012 when 45 people were allegedly shot and killed by police brought in to calm the situation after inter-union rivalry turned violent.

All eyes will be on the ongoing government-led mediation talks to end the strike and save the industry.

Edited by Peter DeIonno. With contributions from Roy Cokayne and Dineo Faku.


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