The African National Congress’s assurance that it would bail out local banks if they came under pressure from the global finance crisis was a good move, an economist said on Wednesday.
”By just saying that, they will never have to stand behind the banks because the actual remedy has been taken,” economist Chris Hart told the annual convention of the South African Chamber of Commerce and Industry (SACCI).
ANC treasurer general Mathews Phosa told business leaders in Cape Town on Tuesday that the government would protect SA banks if needed.
”Were South African banks to come under pressure, the government would intervene strongly to protect them,” Phosa said.
Hart said that assurance was very welcome because even though South Africa had a stable banking system, it remained vulnerable to the current world credit crisis.
”In the South African inter-bank market, there’s no sign of distress. But these things can happen quickly,” said Hart.
”The economy is at risk … it’s a reality.”
The rand is a ”highly vulnerable currency” and South Africa is not completely immune to global problems.
”The big problem with rand weakness is that it pushes inflation up … Don’t expect an interest rate cut anytime soon based on inflation fundamentals,” said Hart.
”I have this awful feeling … the first possibility of a cut comes only in 2010,” he added. ”The consumer really is flat on his back at the moment.”
Hart predicted that the property market would soon become a stronger indicator of a country’s economic state than inflation rates.
Even when interest rates raise, many people in jobs are still able to pay their bonds, but if the economy starts shedding jobs, the situation becomes serious, he said.
South Africa’s economy should be safe if the government did not change its inflation targeting policy.
”If the markets start to perceive that we are not committed to our inflation target policy … we will have to derate the stock market and the bond market.
”Our long term inflationary policy must remain intact. It is key,” said Hart. – Sapa