There had been questions asked over the last couple of months with regards to the state of the South Africa economy, with some saying that South Africa is not in a recession like other countries in the world. But today, the truth we revealed: South Africa is officially in a recession.

South Africa sank into its first official recession in 17 years in the first quarter of 2009, with a huge 6.4% collapse in gross domestic product (GDP). The drop in GDP in the first quarter follows a fall of 1.8% in the fourth quarter of 2008. A recession is defined as two consecutive quarters of declining GDP.

What this simply means is that times are going to be tougher for us now in South Africa. With the economy not growing, you can expect further job cuts, therefore if you do have a job, it would be a good idea to try keep it! One has to also look at their spending now. Gone are the days on splashing out on luxury goods. In the famous words of Reserve Bank governor, Tito Mboweni, “It is time to tighten your belts!”

Economists predict that this slump will not last long with some going as far as saying the South Africa economy will start to grow again as early as the third quarter of this year. But for now we have to bare the brunt of a recession!

Yes! We have another interest rate cut. The Reserve Bank’s Monetary Policy Committee (MPC) concluded their meeting today which started yesterday and have decided to cut interest rates by 100 basis points. This simply means that interest rates will come down by 1% meaning the prime lending rate is now 13%. Now you will be paying less on your mortgage or car loan.

This comes as good news to most of us as we have a loan of one form or the other. They say that South Africans in total have an accumulated debt of R1 trillion! That is a lot of money. But hopefully now with the 1% drop in interest rates we can cut the amount of debt we have. There is also the possibility that interest rates will come down by another 1% next month.

Reserve Bank governor, Tito Mboweni however warned us that now that the MPC is meeting every month, it does not mean they will be cutting interest rates every month. So we have to enjoy the cuts whilst they last. With the way the wold economy is going, we should be a bit happy with these interest rate cuts as things could easily be worse.

I was in shock when I found out that Central bank governor Tito Mboweni received a 27.5% pay rise this year, above the country’s 3% to 6% inflation target. His annual pay, including fringe benefits, stood at R3.387m in 2007 and, with pension and medical contributions, the total package was R3.796m. The bank’s two deputy governors Xolile Guma and Renosi Mokate received increases of 66% and 72% respectively, taking their total pay to R2.774m and R2.839m. Some people live the good life!

Okay, it is not only these guys who are earning millions of rands every year as quite a number of top executives earn such large salaries. What is just funny to note is that the central bank gives these top guys such huge increases in their salaries when they themselves are he ones who tell us to ‘tighten our belts’ and not spend a lot of money. These are the same people who want to bring inflation down but on the one hand are having salaries increased at a much greater rate than inflation. Offcourse their salaries alone will not dent the inflation outlook of the whole country. It would be interesting to find out if all employees at the Reserve Bank got such huge salary increases.

Do you think Mboweni deserves such a salary?

The news most of South Africa had been waiting to hear today; Interest rates will not be changing, this after the Reserve Bank decided to keep the repo rate at 12%. Most of us were waiting with baited breath this afternoon, fearing that interest rates will be increased again. An increase in interest rates would have plunged the majority of South Africans into even more debt. Can you imagine having to pay a couple Rand extras every month on your mortgage or car? But now, we will not have to pay extras due to the interest rates remaining where they are. What I can hope for now is that instead of waiting for the next MPC meeting and waiting to find out if rates are going to go up or remain where they are, we can be in a position of hearing the possibility of interest rates going down. I may be dreaming about the possibility of interest rates going down anytime soon but we are all allowed to dream aren’t we?

Some analysts are predicting that interest may only start to come down in the middle of 2010 so for now we just have to hope that they remain where they are as opposed to rising. There is also the possibility that the price of fuel could be coming down next month which is cause for celebration.

Johannesburg residents and industries can expect an electricity price hike this week. The city has approved Eskom’s electricity tariff hike of 20.6% at its council meeting. City Power’s Managing Director, Silas Zimu, says even though consumers will pay more for electricity, blackouts can be avoided since the city has enough reserves. The tariff would be implemented on August 1. Poor consumers, however, would not be given an additional increase in tariffs and their share would be covered by the city. The more electricity people used, the more they would pay for it by the looks of things. This tariff increase is seen as a way to try encourage consumers to use less electricity. Read the rest of this entry »

The Monetary Policy Committee (MPC) have decided to increase interest rates by 50 basis points meaning that the prime lending rate is now 15.5%. Reserve Bank governor, Tito Mboweni, made the announcement this afternoon. Some analysts had predicted a 100 basis point interest rate hike with some even thinking the hike will be by 200 basis points. But alas, it was ‘just’ 50 points to the shock of many. Just yesterday, I was listening to a lot of people complaining how a 1% or 2% increase would ‘kill them’. I do not recall anyone thinking that it would only be a .5% increase. Although any form of an increase is painful, todays increase will not hurt too badly, but the fear is that we may get many more ’small’ increases in the future. Would you rather have these small increases or just one big increase?

Most weekend papers ran with stories about how the tough times were now upon consumers in South Africa and that we should brace for the possibility of paying R16 for a litre of petrol in the near future. With the ever rising world oil prices the future is not looking great.

On Friday, the price of oil hit a record of almost $139 a barrel. Some analysts predict that the price could reach $150 as soon as July this year. The oil price continues to rise due to concerns of supply not meeting the demand and the continual political tension in the Middle East. With that said, there has been speculation that the price of oil could even reach the $200 mark by the end of this year. If the price reaches $200 a barrel then we could easily be paying R16 a litre by then. Read the rest of this entry »

Yesterday, the South Africa Reserve Bank governor announced that interest rates would be raised by 50 basis points meaning that the prime interest rate that we borrow money from the banks goes up to 15%. If this is not torture then I do not know what is. It is said by some that the increase in the rates is a way to try control inflation which is running away into the sunset. There is no denying the fact that inflation in South Africa has to be controlled but is the Central Banks target of having inflation being between 3 - 6% realistic? Read the rest of this entry »

Last week the Rand lost 3% in value, that’s a big a deal to those who may think this is a small loss but in this economic climate of high fuel prices, lack of consistent power supply and now a weak Rand, we, South Africans, maybe in for a hard year. A strong Rand used to somewhat offset increases in the oil price but that may not be the case today. So what can we say or better yet what are the economists and those in the Ministry of Finance and Treasury saying? Some have said its part of the global economic slow down led by the weakening American economy suffering the aftershocks of the Sub-Prime and credit crunch in capital markets. Others are saying that this is the curse of our economic growth. This has been the mantra by the government especially when it comes to electricity. Read the rest of this entry »

As we had all thought, the Reserve Bank have raised interest rates again by another 50 basis points which means that the prime lending rate in South Africa is now 14%.

This is the highest the rate has been since September 2003. Prior to this announcement a few hours ago, many economists across the country thought that the Reserve Bank would not change the interest rates but I guess they were all wrong and are now in shock as most South Africans will be today. Read the rest of this entry »