SA Reserve Bank.
JOHANNESBURG - Economist Roelof Botha has lashed out at the SA Reserve Bank for keeping the real prime interest rate too high, which discouraged economic growth.

“The Reserve Bank has lost the plot. There is zero demand inflation in this economy, and they need to put a bit of faith into the future,” he told a PPC breakfast event at which the listed cement and lime producer launched an improved and extended product range.

Botha said former Reserve Bank governor Gill Marcus realised that the central bank’s mission was to ensure it kept inflation low, but not to do this at the cost of a recession.

He said Marcus targeted a real prime interest rate of 10percent, which meant the real repo rate, after taking inflation into account, was negative, but only by about 50 basis points. Botha said this interest rate level was more or less in line with South Africa’s peers.

But Botha said “the new kids on the block” at the Reserve Bank had doubled the real interest rate, which was exactly what should not be done when there was a need to grow the economy.

Botha added that the ratio of household debt to household disposable income had declined nicely in South Africa to about 71percent.

He said this meant that if the average South African household took all its income and put it into its debt, in nine months it would not have any debt. “That figure for Australia is 200percent. It will take them two years,” he said.

Botha said the news about the construction sector was very depressing and it was not growing, but at -1.3percent it was not a train smash.

But he said the official employment figures for construction were a total contradiction of the country’s gross domestic product figures.

He believed the employment figures indicated that there must be a lot going on in the informal construction sector and the less regulated sector. He forecast that the country’s construction sector would shortly have “another seven golden years”.

Botha was excited about the future of the construction industry because of the circular flow of economic activity that would result if the country fixed the municipalities and “got rid of the crooks”.