Uncle Tito delivers the cut
Tito Mboweni, The Guv, delivered the Monetary Policy Committee (MPC) report yesterday afternoon.
The Reserve Bank has cut the repo rate to 11.50% from 12%. The Repo rate is the rate at which the Reserve Bank lends to the commercial banks.
The prime rate was cut from 15.50% to 15%. The prime rate is the rate at which the commercial banks will lend to consumers at.
In theory when this goes down, stuff gets cheaper, but bear in mind that these cuts will not always be passed on to the consumer. If you have a homeloan now is a good time to consider debt consolidation or re-mortgaging as you may be able to take advantage of the interest rate cut and negotiate yourself a reduction in your payments.
The financial news outlets today covered the interest rate cut in depth.
The Times reported that Standard Bank was going to implement these cuts from today, while the other banks would only implement them from Monday. They noted that estate agents were happy about the cut, but that this would be no instant fix as there was currently an over supply of houses on the market and the extra demand created by the interest rate would take some time to match increasing demand and over supply up again.
The MPC indicated that part of the reason for the cut was that the external economic environments problems were out weighing the inflationary pressures that the high interest rates, we have so far endured, were designed to combat. Inflation is still a risk due to the volatility of our currency, but domestic pressures were now strong enough to out weigh the general policy.
If inflation maintains its downward trend then we can expect further, deeper, rate cuts next year.
Bloomberg noted that our Reserve Bank was joining reserve banks around the world in cutting interest rates, in order to help boost economic growth.
However they quoted Tito Mboweni, The Guv, as saying 'We are not making a call that people must go on a Christmas spending binge'. The thing is though, that people tend to spend today and forget about tomorrow, and in the upswing of positive sentiment that follows rate cuts, many folk might just be tempted to splurge.
Justmoney has a budgeting tool that enables you to keep track of your finances so you don't get yourself too far into debt.
Business Report said that we can look forward to en easier time economically next year, but also carried The Guv's warning about going on a binge, even though the MPC believes that inflation could 'come down radically'. The MPC now believes that inflation will be in the target range by the third quarter of 2009 rather than 2010. This article also carried private sector opinion that was broadly optimistic about inflation.
The Mail and Guardian also noted this inflation date revision. They carried opinion that this cut was not enough to stimulate household consumption, and that this cut was more related to positive sentiment than an actual economy booster.
Justmoney is looking forward to things looking up in 2009 with inflation coming under control and a whole raft of interest rate cuts to stimulate the economy, but in the meantime why don't you get a savings account and hang on until the New Year turns.