By 2015 South Africans could expect prime interest rates below ten percent, Rand Merchant Bank chief economist Rudolf Gouws said on Tuesday.
”I expect a less volatile and low nominal and real interest rate will be likely and in five to ten years single digit prime rates will be the norm,” Gouws said at the release of the KreditInform Barometer findings on the South African economy.
Speaking in Johannesburg, Gouws also predicted South Africa’s long term business environment would have a higher growth potential.
The economy had been in an ”upswing” since 1999, he said, which was the longest upswing ever recorded.
”People sense in some way we are going back to the golden sixties,” he said, but added we are in a much better position now than we were then.
”In the sixties it was a case of ‘bo blink en onder stink’ (shiny above, stinky below) as the politics laid a foundation for the economic crises in the next decades.”
However, now future economic growth would be aided by increasing fixed capital investment, he said.
This would boost domestic demand while creating better infrastructure, lowering manufacturing costs, facilitating exports and increasing public sector expansion.
But, he said, this could be hampered by various factors — including skills shortages, infrastructural weaknesses, regulatory impediments, HIV/Aids and labour market rigidity.
”If all the current initiatives are fully implemented and bear fruit then this ceiling will gradually be lifted,” he said, mentioning government’s capital expenditure and other plans to boost the economy.
Gouws said the rand was around the right level. ”We are more or less where we should be now,” he said.
In the short term, Gouws predicted the rand might weaken somewhat although he hedged his bets.
”The rand is structurally healthier but will or may or should weaken later this year and in 2006, but this depends on the US dollar,” he said, adding that there would always be some volatility.
Respondents to the KreditInform Barometer expressed the same positive sentiment towards the South African economy.
Sixty two percent said they expected the economy to grow between 3,5% to 3,7% in the next 12 months.
Although this is lower than the 2004 growth rate of 3,7%, it still reflected an optimistic outlook.
Gouws said 58% of those surveyed expected both interest rates and the rand exchange rate to remain the same.
He agreed that interest rates could remain stable for the short term, but said ”the odds on a rate cut are marginally higher than a hike”.
The low interest rate meant the real cost of borrowing money was cheaper, he said.
”There is nothing wrong with growth in demand for credit… Our debt levels relative to income are low compared to international levels.” Gouws said.
The KreditInform Barometer surveys over 100 major corporations in South Africa bi-annually. – Sapa