Manuel asks banks to share high rates burden
Finance Minister warns institutions they may be driving their clients into the wilderness, writes THABO KOBOKOANE
"I don't set interest rates," he told Business Times in an interview. "I can't instruct banks to set them at any particular level nor can I tell the SA Reserve Bank what to do in monetary policy.
"But I can appeal to the good sense of those who look after our financial institutions. It can't be in their interests to have fewer and fewer clients in the future as a result of increasing bad debts and ever greater numbers of blacklisted people.
"All I can do is to raise the fact that under the present climate, high interest rates are going to choke off any prospects of growth," Manuel said.
He suggested that banks consider more than just their margins, but think of other options too before increasing rates. In this way, they might help build a culture of "burden sharing".
Manuel's comments follow an earlier call, at the height of the rand crisis, urging banks to hold off from increasing interest rates.
Turmoil on the world markets triggered by the Russian crisis and ongoing concerns over Asia led to interest rates hikes of between 1.5 and 2 percentage points by leading SA banks last week, bringing the total increase since late May to about 6 percentage points.
The moves followed a rise in the Reserve Bank's key lending rate just over a week ago and days of sustained upward pressure on rates in general.
Manuel believes SA has little choice in the short term but to live with high interest rates. "I hope it will blow over in a short time."
Economists have already revised economic projections downwards and many believe SA is heading for a recession. Figures by the Central Statistical Service show that the economy grew at a revised 0.5% and 0.3% in the first and second quarters.
Manuel warned against what he called "populism" in response to growing calls by SA citizens for a respite. He also warned against turning the clock back and reintroducing exchange controls such as those announced by Malaysia's prime minister, Mahathir Mohamad, in the past week.
"Many have argued that we should insulate ourselves. That is not going to work at this stage," he said. What was needed were institutions that would regulate global capital flows, much like the World Trade Organisation.
"Very few policymakers in the world would argue that what is happening in the world today is in the interests of the global economy," he said.
His comments echo calls emanating from the Non-Aligned Movement summit in Durban this week for an international financial regulatory framework.
Further bad news came SA's way from the International Monetary Fund this week, which criticised the SA Reserve Bank's handling of the rand crisis, the country's lack of labour flexibility and slow progress on Gear.
In July, Moody's Investors Service, one of the world's biggest credit ratings agencies, announced it had placed three of SA's ratings on review, adding to the negative sentiment that has swamped SA markets.
However, Manuel pointed out that the report was not timely as the SA Reserve Bank had, before it was published, dealt with the issue and exited from the forex market.
"The IMF is not there to hand out bouquets, but I want to suggest that they don't have all the answers. We can't expect them to say anything else, but it remains an important contribution," he said.