Page 119 - SARB: 100-Year Journey

part of this newfound prosperity, but would also prove detrimental in the latter years to the overall functioning of the economic system.
A case in point is the SARB’s Annual Economic Report for 1965 which shows an acceleration in state and private sector fixed capital investment, and overall growth in consumer demand. But in the same report, reference is made to data indicating the adverse economic impact of the structure of the economy, as well as the attendant risks of the boom.
“In due course ... the boom got out of hand and the Reserve Bank had to contend with excess demand and generally overheated economic conditions, which produced not only accelerated inflation but also a large deficit on the balance of payments.” (South African Reserve Bank, 1971, p 65).
In response, the SARB controlled the interest rates paid on deposits and placed restrictions on imports. Initially, these steps “did not produce the desired results.” Eventually, internal and external economic stability was restored through the implementation of monetary and fiscal policy measures, including cutting back on government spending, the implementation of higher interest rates (following the abolition of deposit rate control), and relaxing import controls (South African Reserve Bank, 1971, p 65).
Another noteworthy event is that the new Bank Acts came into effect at the beginning of 1965.
This Act set guidelines on commercial banks’ liquid asset requirements. “Between 1964 and 1965, the SARB [had] warned banks about excesses in credit extension and the use of easy-credit ‘gimmicks’.” The Act enabled the Bank to institute “a new direct form of
credit control never used before in South Africa, namely the imposition of credit ‘ceilings’.” (South African Reserve Bank, 1971, p 65).
“This method was used, despite its many obvious disadvantages, largely because of the difficulties of controlling bank liquidity at a time when the government sector was financing its expenditures in an inflationary manner and thereby providing the banks with additional cash or liquid assets.” (South African Reserve Bank, 1971, pp 65−66).
Between 1968 and 1972, gross domestic product (GDP) was on an upward trajectory underpinned by rising wages. The SARB’s Annual Economic Report of 1972 recorded GDP expansion of 12%, up from the 8% documented between 1970 and 1971. Positive activity in agriculture and mining had helped to lift GDP performance.
But there was trouble ahead.
15
10
5
0
-5
-10
Gross domestic product at market prices
Per cent
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: SARB
Gold mine shaft. /Getty Images
Source: SARB
109