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Speaker 1: Well, the Reserve Bank surprising precisely no one by keeping

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Speaker 1: rates on hold. Today, the governor et Cera Caniaco pointing

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Speaker 1: out there are just too many moving parts for anyone

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Speaker 1: to really predict what will happen in the Middle East

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Speaker 1: and therefore to oil prices and fuel prices. Kevin Lynx

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Speaker 1: is the chief economist at stanleyb Asset Management. Kevin, thanks

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Speaker 1: for your time, good evening. I mean, if you look

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Speaker 1: at all of the variables, all of the moving parts,

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Speaker 1: I suppose the bank didn't really have much of a choice.

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Speaker 1: A hold was probably the only prudent option.

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Speaker 2: Hi, Stephen, Yeah, that's exactly right. There's been I think

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Speaker 2: about fifteen central banks that have met since the run

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Speaker 2: war started, and the vast majority of those have kept

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Speaker 2: rates on hold. There have been a couple of countries

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Speaker 2: that have hiked, I think I remember Iceland heiked, Australia hiked,

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Speaker 2: But generally the thought at the moment is a wait

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Speaker 2: and see, And what you're looking for is how long

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Speaker 2: does this crisis last? How long does the oil price

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Speaker 2: stay at these levels? And obviously the longer it stays

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Speaker 2: at the level that it's at at the moment, the

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Speaker 2: more damage it will do both to inflation and growth,

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Speaker 2: and the primary focus is unfortunately going to be on inflation,

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Speaker 2: and so the tendency from most central banks will be

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Speaker 2: to wait and see, but keep indicating that the risk

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Speaker 2: is too higher interest rates. If the impact of the

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Speaker 2: oil price broadens into many different price categories.

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Speaker 1: We seem to be expecting, I mean, they are different views,

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Speaker 1: but a fuel price hike of probably between five and

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Speaker 1: seven ran next week, what does that do to inflation?

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Speaker 1: I mean, I'm presuming we would see the impact pretty quickly.

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Speaker 2: It's immediate, so we'll see it in the April data.

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Speaker 2: We've only just had the February data, so the next

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Speaker 2: round of inflation numbers won't reflect that there was a

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Speaker 2: small increase in the petrol price in March twenty cents thereabout.

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Speaker 2: So we've got to wait for the April inflation data

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Speaker 2: and then we'll see all of that taken account in

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Speaker 2: that month. At the moment, inflation is doing brilliantly well.

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Speaker 2: It's down at the three percent both at the headline

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Speaker 2: and core level. But when you push through the expected

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Speaker 2: petrol and diesel price increases, you're going to push inflation

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Speaker 2: immediately up to over four and a half percent. Now

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Speaker 2: it depends on your perspective. You may say, well four

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Speaker 2: and a half percent still okay. But for the Reserve Bank,

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Speaker 2: they target is three percent, and they'd made excellent progress

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Speaker 2: in getting it down to three percent, and now you're

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Speaker 2: giving all of that back and more. And what the

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Speaker 2: governor highlighted that I think is exactly right is it's

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Speaker 2: going to take us all into next year in order

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Speaker 2: to get inflation back down to where we are three percent.

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Speaker 2: And so that's a lot of damage, and that's worth

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Speaker 2: A good base case scenario where the war ends fairly

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Speaker 2: soon and we get a moderation in the oil price

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Speaker 2: fairly soon, there.

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Speaker 1: Will be an argument that will say, well, oil prices

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Speaker 1: are out of our control. You're bringing your hiking interest

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Speaker 1: rates to meet a sort of new target. You're damaging

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Speaker 1: the economy while you do it. Policy is the phrase

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Speaker 1: I think they used was mildly restrictive at the moment.

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Speaker 1: It would have to be more than that. So more restrictive.

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Speaker 1: Why not just wait it out, let inflation go a

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Speaker 1: little bit higher, because you can't control the main driver

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Speaker 1: of it anyway, And when oil prices come down, If

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Speaker 1: oil prices come down, it'll go back to what it

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Speaker 1: should have been all along.

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Speaker 2: Yeah, So these validity in that argument, right, because you

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Speaker 2: are inflicting and high oil price. High petrol price is

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Speaker 2: pretty much exactly like a tax increase. You're inflicting quite

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Speaker 2: a lot of damage on your economy and it's going

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Speaker 2: to hurt. It'll hurt everybody, consumers' businesses. And clearly if

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Speaker 2: you then on top of that hike interest rates, it

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Speaker 2: will hurt even more. So why hike interest rates? The

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Speaker 2: reason is that and it certainly happens in South Africa.

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Speaker 2: So let me just quickly describe it. You go to

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Speaker 2: the petrol pump and you fuld up your tank next

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Speaker 2: week April or wherever, and you're going to be paying.

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Speaker 2: Let's say you end up paying four hundred five hundred

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Speaker 2: rand more for your lead for your tank of fuel,

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Speaker 2: which is pretty much what you're going to end up

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Speaker 2: paying for many cars. Now what you should be doing is,

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Speaker 2: therefore you've paid four hundred rand more, you've got the

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Speaker 2: same amount of petrol. Now you should be actually spending

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Speaker 2: four hundred rand less somewhere else. Now that's not what happens,

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Speaker 2: certainly not in South Africa. What we tend to do

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Speaker 2: is we continue to consume at the same pace for

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Speaker 2: those other items, and we pay more four hundred rand

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Speaker 2: more for our fuel. And so where do we get

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Speaker 2: the money to afford those other items We monetize. We

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Speaker 2: put it into our credit card, and so what happens

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Speaker 2: is that our credit starts to go up and we

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Speaker 2: start to accommodate these price hikes, and it allows much

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Speaker 2: more easier for companies to look at the situation and

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Speaker 2: pass on the petrol price increase through a whole range

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Speaker 2: of other items. And the the Reserve Bank says, well,

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Speaker 2: I've got to stop that pass on effect. I've got

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Speaker 2: to try and control it. And the only instrument I've

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Speaker 2: got is to make credit more expensive. So then it

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Speaker 2: dampens down the ability, the willingness to use credit, which

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Speaker 2: then dampens down the ability for companies to pass on

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Speaker 2: these price increases. In other words, you squeezing the economy.

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Speaker 2: You're trying to get the economy to take the pain

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Speaker 2: of the petrol price hike and not simply pass it on,

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Speaker 2: and it becomes embedded, so yes, it inflicts additional pain.

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Speaker 2: The Reserve Bank would argue that it's short term pain

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Speaker 2: for long term gain keeping inflation under control is much

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Speaker 2: more important over the longer term than the short term

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Speaker 2: pain of adding interest rate hikes.

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Speaker 1: Kevin Links, thank you so much. Really appreciate that. Chief

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Speaker 1: economist at Standard Asset Manage