Call for reserve bank and SMME to work together

[sterne.law@gmail.com]

The Mercury carries a piece where the writer calls for the reserve bank to work with SMME on interest rate policy. Naturally he calls for a deduction but the main thread is that interest rates tend to affect the SMME far more than the JSE and big players. Small business becomes big business and in the early days will normally have a lot of debt or require debt in order to expand. The article highlights another pitfall of government policy failing to take SMME interests into account.

[Dave A]

SMMEs tend to get zapped with higher interest rates than big business does too. It's hard to get around the natural law of economies of scale.

Personally I think we missed a trick with this last Reserve Bank meeting. There was scope to drop rates 0,5%, but I blame the narrow mandate given to the Reserve Bank for this. Contra-cycling regulatory forces to what is happening in the market isn't just about government expenditure.

If the Reserve Bank continues with its extremely cautious, reactionary response to the market, CPI will drop well below the upper limit of the target range before they respond. They need to learn to act ahead of the curve, not behind it.