To cut or not to cut?

By Staff Writer

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To cut or not to cut?

The Monetary Policy Committee (MPC) has been meeting yesterday and today.

They are expected to deliver an interest rate change at three this afternoon.

There has been a lot of talk about the interest rates, as they have such a large effect on how much money we can spend, as it determines how much we can afford to be lent. The National Credit Act (NCA) has calmed out of control borrowing, especially the sort of irresponsible lending that has crashed the US out.

Here in South Africa we are still lending and in fact credit extension is growing at around 16%, not bad considering how many countries have just stopped lending pretty much altogether.

An interest rate cut will increase the affordability of loans and this should help stimulate the economy out of our lowest growth figures in ten years.

The JSE appears to be expecting a rate cut as The Times puts it 'JSE buoyed ahead of MPC'. A local trader was quoted as saying 'Today we broke away from following the Dow - the main driver at the moment is the positive sentiment ahead of tomorrow's decision'. This local trader is not the only one waiting with bated breath for 3pm to roll on by.

The Dispatch carried a story detailing a poll that shows economic analysts are expecting a rate cut. They noted that the weak retail figures that were released for October could spur the MPC to stimulate the economy by cutting rates and making credit more affordable.

However some analysts believed that the MPC might sit back and wait a bit so as not to scare the Rand.

The Mail and Guardian had two stories looking at the possibility of a rate cut off of the MPC meeting. The first looked at the shrinking retail sales in October that point to the Reserve Bank cutting rates to stimulate spending. The second article carried opinion by Sanlam Investment Management, which basically said the MPC might err on the side of caution, but that there were numerous reasons for starting to cut now as around 300 basis points were expected to be cut over the course of next year, so 'A start with 50bp this week appears justified'.

Business Day carried the retail sales down story also linking it to a call to cut the interest rate today, this article also noted that consumer spending was down according to bank data released this week.

Business Report however tells us that despite all the negative data retailers have a 'surprising mood of optimism' for the holiday and shopping season expecting to do a roaring trade even though big ticket items are expected to slow.

An interest rate cut would help this sentiment to become reality, but we would end up having to take more credit in January to pay off the excess of December. Justmoney reckons getting a savings account is a good thing regardless of the rates and if you feel a bit more breathing room then look at a credit card or loan for those special presents, but always run a budget so you know where you are at, and don't overspend by mistake.

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