In a week where a lot is being written about interest rates, one of the reasons why the repo rate must be increased once more is the interest rate difference between U.S. and South African government debt. We have to offer a premium to attract investors to our capital market and when the Americans raise their interest rates the premium becomes smaller. If the Reserve Bank follows their increases, it supports the market for our government debt and the rand. However, that premium is very large and new research asks how much of it has to do with credit risk, with uncertainty about inflation prospects, or with the risk that the rand may depreciate.
* The Economics Minute is supported by the NWU Business School.
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