The organisation says in a statement that, on a balance of risks, the SA economy must now be allowed to absorb several new internal and external factors affecting its performance in 2008. Business confidence has also become more vulnerable in the recent past and any further rise in interest rates would have unnecessarily damaged business and consumer sentiment. The risks to output growth seem to be on the downside and are likely to be strengthened by electricity supply disruptions. Economic growth is likely to be somewhat lower this year than originally expected.
Energy costs now loom large in South Africa's economic performance in two important ways. The proposed increases in Eskom tariffs could still have a disproportionate effect on inflation, and BUSA believes that, unless present power outages and load shedding programs are managed better in the short term, interest rates may have to stay higher for longer than otherwise would be the case.
Overlaying the domestic factors are the latest economic international trends. The global economic outlook has recently deteriorated and new uncertainties have crept into the international economic situation in ways that could make the SA economy more vulnerable.
In view of these factors, the organisation believes that keeping the interest rate at the present level is the best course of action at this time.
