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DRDGOLD Ltd. Message Board

  • mblimon2000 mblimon2000 Apr 11, 2005 2:32 PM Flag

    Rate cut would benefit all parties

    On Wednesday 13th and Thursday 14th of April the Monetary Committee of the SARB meets for the second time this year. When you see the NUM rightfully fighting to preserve jobs and purchasing power of miners on the one hand, and the mining industry desperately trying to postpone the closure of marginal SA mines on the other hand, wouldn't it suit all parties, if the SARB lowered interest rates by 50 basis points to create the conditions for a viable industry? It would take away social unrest, create/preserve jobs and bring in tax money. Don't they call that a win-win situation?

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    • I have studied the currency issue for quite a while. I find a strong Euro and UK Pound is a prime driver of a stronger Rand compared with direct US dollar influence. Of course the Euro is influenced by the dollar and vice versa.

      The reserve bank didn't change rates in it's last meeting even though it was reported to be a 50/50 chance. Much commentary backed the theory about inflation and jobs with predictions the reserve bank would have to cut this time.

      I agree with your post about the damage done. But a strong Rand reduces the cost of oil, this lowers inflation while the economy adapts. It would be much worse if the Rand was weak and oil higher, thus, the damage you cite isn't significant in the minds of the economist.

      Other areas of growth have been hard currency inflows, tourism/retail/service sector growth etc. which offsets mining job losses.

      Again, it would be much worse for the SA economy with a weaker Rand and higher oil. It is the time which all this occurs which is important, a slow steady depreciation of the Rand is preferred to a rapid hyper-inflation plunge in value. This is why the reserve bank is cautious and may not change rates.


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