Cutting rates: you have to know the drill

The next interest rate cut will happen between 3.21pm and 3.26pm on a Thursday.

How can I be so specific?

Monetary policy committee meetings at the Reserve Bank take place every two months, between a Tuesday and a Thursday. It's when the governor and his advisers consider a mountain of often contradictory information in a bid to fulfil their mandate, which is to ensure price stability, or, in other words, keep inflation under control.

And the timing is an average of the duration of governor Lesetja Kganyago's previous rates pronouncement media briefings.

You want a date? That's much harder. C ould be as soon as the third quarter. Maybe even August. True to the nature of economics , it depends on a range of factors - most domestic, nearly all political.

This week's data supports the view of a rate cut by August. Inflation at 6.3% looks like it's on a downward trajectory after peaking at 6.7%.

Inflation is likely to start falling quite quickly provided the rand remains stronger and political uncertainty grips other parts of the world more than it grips our own.

This week's positive economic data provided a sliver of optimism that the Reserve Bank - which until now has been wary of the currency, and the inflation consequences of cutting rates while the US could aggressively raise its cost of money - might have room to deliver its first cuts in four years.

South Africa's considerably higher-than-average interest rates have provided the rand with some support as the gap between rates here, and, say, the US or EU is significant enough to draw global yield-seeking portfolio flows to the local bond market. The fear is that if rates elsewhere rise quickly, the perceived greater security of low-yielding US treasuries will outweigh the benefits of the interest rate differential enjoyed by ZAR depositors.

Few people are more opinionated than my dentist on the subject. He believes low interest rates will stimulate the growth we need to grow the economy, which is suffering as a result of the high cost of capital. He knows he needs the best imported equipment to be cost-effective, but high rates mean higher costs and less capacity to grow.

If he were Reserve Bank governor, he would slash rates by at least 300 basis points to shock the economy into life. Although it's only half the equation, it's hard to argue with a man probing at your ageing teeth with a sharp instrument made of imported German surgical steel.

In addition to the better inflation outlook - which is further improved by the expectation of lower food prices thanks to a bumper maize harvest - the current account surprised, too.

Our current account deficit in the last quarter of last year improved to 1.7% of GDP, its best level in six years, thanks in part to higher commodity prices which boosted the value of our exports, and the fact that we are importing less. But slow growth and slow demand for imports do little to boost confidence.

My dentist argues that rate cuts are a panacea. But no amount of interest-rate cutting by itself will provide the sustainable stimulus we need to grow.

The economy would benefit from a cheaper cost of capital - it might stimulate borrowing to fund purchases and pay for capital equipment at more reasonable rates - but that does not mean the country will race back to 3+% growth.

Besides, the inflationary effect of dramatic rates cuts would create all kinds of imbalances, including tempting an already over-indebted populace to borrow more to fund lifestyles they can barely afford. It might feel great for a quarter or three, but eventually inflation would take hold, forcing the Reserve Bank to counter its effects even more aggressively - which would bring the world's biggest borrowing party to an agonising halt.

But I am not going to tell my dentist that. He is, after all, armed with a drill.

Whitfield is a public speaker on the political economy and an award-winning financial journalist and broadcaster