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Johannesburg - South Africa's interest rate is too low and inflation too high to encourage economic growth, economist Chris Hart said on Tuesday.
Policymakers "have forgotten savings is a critical part of driving economic growth", Hart told an Investment Solutions breakfast in Johannesburg.
He said South Africa's repo rate of 5.5% is too low to encourage growth. At the same time, the inflation rate of 5.7% is too high to make savings worthwhile.
Investors need to be compensated for inflation and time when saving.
"Policymakers haven't taken this into account," said Hart.
Low interest rates in the developed world -- some as low as zero percent - are counterproductive to growth.Central banks around the world have been cutting interest rates and flooding the economic systems with liquidity - or money.
"Even with central bank stimulus, economic performance is slowing," Hart said. At the same time, inflation is starting to rise across the world.
"Do you deal with slow growth or inflation?" he asked, adding that the two require opposing solutions.
Hart predicted that the SA Reserve Bank would not respond to the threat of rising inflation, but would look at growth. For this reason, it would keep the interest rate unchanged for the whole of 2012.
Hart expects inflation to peak above 7% in the second quarter of 2012 due to the weakness of the rand.
This was higher than the general consensus that inflation would peak at around 6% to 6.5 % in the first quarter of 2012.
Policymakers "have forgotten savings is a critical part of driving economic growth", Hart told an Investment Solutions breakfast in Johannesburg.
He said South Africa's repo rate of 5.5% is too low to encourage growth. At the same time, the inflation rate of 5.7% is too high to make savings worthwhile.
Investors need to be compensated for inflation and time when saving.
"Policymakers haven't taken this into account," said Hart.
Low interest rates in the developed world -- some as low as zero percent - are counterproductive to growth.Central banks around the world have been cutting interest rates and flooding the economic systems with liquidity - or money.
"Even with central bank stimulus, economic performance is slowing," Hart said. At the same time, inflation is starting to rise across the world.
"Do you deal with slow growth or inflation?" he asked, adding that the two require opposing solutions.
Hart predicted that the SA Reserve Bank would not respond to the threat of rising inflation, but would look at growth. For this reason, it would keep the interest rate unchanged for the whole of 2012.
Hart expects inflation to peak above 7% in the second quarter of 2012 due to the weakness of the rand.
This was higher than the general consensus that inflation would peak at around 6% to 6.5 % in the first quarter of 2012.
