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Disturbing article on the front page of the Business Day Today

You might be interested to know the following talking points:


  • "There is a disturbing article on the front page of the Business Day today questioning whether the tide is turning on the approach towards the central bank. It draws on examples around the world of where central banks have been democratised and politicised. The central idea is that just like the fiscus, the central bank should be used as an additional policy tool to help bolster growth and that a democratic process should decide how it is run. This is problematic on many fronts, but probably the most frightening prospect of all, is to have a central bank in the hands of a ruling political elite that might have limited experience in the laws of economics and may be enticed by the thought of money printing and easy credit with scant appreciation for the longer-term consequences. "


  • "There is a common narrative amongst left-leaning socialist minded parties that suggests SA is missing a trick by not loosening monetary policy further, especially now that inflation appears to be under control. The view is informed by the belief that interest rates are a growth lever than can be pulled at will and that only good can come from lowering interest rates.Very little if any debate is ever had on this issue and whether that line of thinking holds merit. It sometimes beggars belief that the simple concept of interest rates reflecting the price of money is never debated. That it is a balancing mechanism and that interest rates need to be set at appropriate levels for the prevailing economic environment to be sustainable, just as a price for a good or service needs to be appropriate for demand and supply to be in balance. Monetary corruption, or the manipulation of interest rates lower for short-term gain will be the death knell for the SA economy should it ever materialise. Turkey offers the latest example of exactly what monetary corruption looks like, and it isn't pretty. "


  • "In a country where the ruling party is steady losing support and turning increasingly more populist to retain relevance, this is a very dangerous path to tread down. Not only has this government shown an inability to run institutions in the country's best interests, especially when it serves a political imperative, but the allure of the printing press to a party fraught with corruption is tantamount to waving a red flag to a bull. It is to be avoided at all costs and simply comparing SA to other countries that have gone a different route is not helpful, simply because SA has not earned the right to be trusted with such authority and control. That requires credibility and credibility is earned over a prolonged period of time. Once again it appears that the question of central bank independence will be rearing its ugly head and once again this will offer investors yet another risk that they will need to accommodate in their pricing. One should guard against complacency on this front and simply taking politicians words at face value. "


  • "At the start of a thinned-out week, direction was going to come from abroad. After a relatively good performance last week there was a lot of relief already priced in and just three weeks ahead of the elections there will always be some event risk that would need to be accounted for. Add to that a modest correction in global risk appetite and the USD-ZAR has encountered some support. "


  • "That is a fair point and perhaps investors need to get used to the idea that the ZAR deserves to continue trading at a discount for the foreseeable future or at least until such time as the government shows signs of getting to grips with the SOE crisis, maladministration, corruption and profligate spending. One can only hope that a Ramaphosa government will tackle these issues should the ANC win the elections as expected. However, that would also be expecting the leopard to change its spots. Most investors, believe this is unrealistic given that the rot and factionalism within the ANC runs deep and even if the "good" version of the ANC wins out, there are still many questions around the ideologies of the ANC and whether it is geared to taking some of the decisions needed. For now, anticipating a further USD-ZAR correction is realistic. Yesterday we targeted 14.1000, this morning that might be lifted to 14.1500/dlr before some resistance is encountered”


We appreciate article contributor ,Willem Van Rensburg.

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