By Cees Bruggemans, Chief Economist FNB.

SARB Governor Marcus today announced no change to interest rates, following a two day meeting of the Monetary Policy Committee.

Though there was a tremendous change in presentation style, there was none in policy substance.

The Governor presented her MPC team upfront and it was clear that wide-ranging discussions had taken place to come to the policy decision that was unanimously taken.

Thus there is a clear sense of institutional continuity that no doubt will be widely welcomed by financial markets.

As to the actual decision of leaving interest rates unchanged, it very much focused on the level and behaviour of inflation over the coming year, and the risks to this outlook.

The Governor described CPI inflation as likely hovering around 6% through the coming two years, probably just with the 3%-6% target zone, going by the MPC statement.

The Governor repeatedly emphasized

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By Cees Bruggemans, Chief Economist FNB.

Every SARB Governor these past forty years, from De Jongh to De Kock to Stals to Mboweni, has implied major change in style and policy substance.

We should expect something similar from Governor Marcus who likewise will undoubtedly stamp her own imprint on the office.

Where is she likely to lead us? Though history cannot offer any exact parallels, for circumstances are always unique, one is allowed to wonder.

The changeover from Governors De Kock to Stals now already twenty years ago still comes vividly to mind, and may be useful to recall.

Governor De Kock ultimately proved too determined to use interest rates pro-actively, trying to overly influence demand in an economy that was seriously malfunctioning on the supply-side.

Policy was increasingly desperate to still wring some more performance from a system that could no longer deliver, using demand manipulation to do

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John Riding, chief economist of RDQ Economics in New York, sits down with Michael Mackenzie, US markets correspondent of the Financial Times, to discuss Fed policy, inflation versus deflation and the US employment outlook.

Part 1: On Fed policy Riding says the Federal Reserve will not raise interest rates until 2011 at the earliest. He says an extended period of easy monetary policy is laying the ground for the next bubble and that the Fed itself is engaged in the biggest carry trade out there through its policy of quantitative easing.

Click here or on the image below to view Part 1 of the interview.

Part 2: On the inflation versus deflation debate Riding says the debate between inflation and disinflation or potentially even deflation will be settled on the side of

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By Cees Bruggemans, Chief Economist FNB.

After a great fall (2008), success in arresting the fall and stabilizing the economy on a low level of capacity utilization (2009), growth prospects tend to be very promising as slack resources as well as new inputs will be available to be put to work. Demand needs to grow in order to put such available resources to work.

Potentially this will be so for years to come (2010-2020) as any new supply imbalances eventually ending the next growth expansion (balance of payments, inflation) could remain manageable for the time being.

This, in a nutshell, is the case for growth.

It then gets better, but it also gets worse. For the global environment looks even better than this simple base case, offering piggyback opportunities for small open economies like ourselves.

This very favourable global environment, however, may also prove to offer a too rich

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By Cees Bruggemans, Chief Economist FNB.

The SARB leading indicator peaked at 127.2 in March 2007, thereafter declining for two years, initially gradually during 2007 but acquiring freefall proportions in 2008.

This indicator hit a cyclical low of 105.3 in March 2009, thereafter rising very rapidly to 112.5 by August 2009.

Given the events of 2008 and early 2009, there presumably exists no surprise regarding the indicator’s freefall in 2008. But what has made it rise so phoenix-like rapidly since March this year?

As per the June 2007 issue of the SARB Quarterly Bulletin, this leading index today is a composite of twelve individual time series which together offer superior forward-looking ability regarding the South African business cycle, leading turning points by some six to nine months.

The twelve time series can be grouped in four distinct sub-categories, each making a peculiar contribution to the behaviour of the composite

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This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Business Intelligence: Marc Faber has short term concerns about commodities, says gold may drop to US$800, November 6, 2009. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said he has some short-term concerns about commodity prices including gold. He is also reluctant to invest in bonds.

• Aline van Duyn (Financial Times): Why dollar carry trade faces hidden dangers, November 7, 2009. Most investors agree that it is out there. What is less clear is how big it is, or how worried investors should be about it. The “it” in question is the dollar carry trade. This is an investment strategy that has recently been extremely profitable and as a result has become increasingly popular.

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Richard Koo, the world-renowned chief economist of Nomura Research Institute, discussed the lessons learned from Japan’s “lost decade” during a presentation at Center for Strategic and International Studies (CSIS). During his discussion, Koo suggested that government stimulus can play a key role in alleviating the problems of a balance sheet recession. Koo’s recent book, “The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession”, discusses these issues in greater detail.

Source: CSIS, October 29, 2009.

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Chief Economist Knut Anton Mork at Handelsbanken Capital Markets is one of Norways leading economists. He’s usually a pretty serious guy, but at a conference a few weeks ago he surprised everyone by make a musical final statement. Mr. Mork had written a new lyric to the famous Lionel Richie song “Say you, say me”. “Say U, [...]

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Richard Ennis (CFA Institute): The uncorrelated return myth, November/December 2009.

• Peter Clarke (Financial Times): How to avoid a repeat of the Great Crash, October 28, 2009. The chain of events leading from a collapse in stock prices on Wall Street to a Great Depression has leapt from history with an entirely fresh verisimilitude. John Authers (Financial Times): GDP grows, but pain remains, October 29, 2009. US GDP numbers were a good enough reason to halt the return of risk aversion, but the key to whether risk appetite can return depends on US employment data.

• Economist.com: As joyless recovery, October 29, 2009. New figures suggest that America has at last moved out of recession.

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Rosneft has been fined $180 million by the Federal Anti-Monopoly Service for deliberately driving up wholesale prices for gasoline and other oil products in the first half of 2009, and Lukoil was warned that it could face a similar penalty...in which case, it's going to need the $1.5 billion it is trying to raise by selling dollar-denominated debt to international investors.  The state-owned Sayano-Shushenskaya hydropower plant was raided by riot police yesterday as part of a probe into an August flood that killed 75 employees.  Iran agrees with the 'general framework' of the UN-brokered proposal that it send most of its enriched uranium to Russia for processing into reactor fuel, but plans to make some changes.  'One common reaction is: 'If the foreigners are prepared to agree to this, there must be something wrong with this from Iran's point ...