Rate cuts ahead

By Staff Writer

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Rate cuts ahead

The scene seems set for rate cuts this year.

BUA News, the government news outlet, brought us a story about how rate cuts can be expected in order to revitalise the mortgage market.

They noted that South African banks were hardly affected by the global sub-prime fiasco and that they were some of the most stable in the world.

This can be attributed to the early introduction of the National Credit Act (NCA) in 2007, which limited the ability of lenders to lend recklessly. This may have lead to a depressed home loan market over the last year, but the long term effect is to have sorted out the market in terms of over indebtedness and we are seeing a correction to price levels that are more in line with what the properties are actually worth rather than what they had been inflated to by those with vested interests in creating an artificial property price bubble. This correction is a good thing and should in theory lead to more people being able to afford their own house as the correct pricing levels settle in.

The interest rate cuts will be able to resuscitate the market once it has fallen to more realistic levels.

BUA News also brings us a story regarding the expected interest rates. They interviewed various economist and research groups and the consensus was for between a two and three percent cut in the interest rate over the course of 2009.

BUA News seems to be happy with these figures and it can be said that they are broadly expecting the same sort of cuts as the economists are predicting.

This is probably a very reliable indicator that the 200 to 300 basis points cuts that are expected are in fact realistic and going to happen. This is good news that the markets will price in accordingly and as their effects take time to manifest, slowly turn the economy around so we are in a great position to attract the sort of expected capital inflows that will come with the World Cup in 2010.

As mentioned before South African banks are in a very strong position and we should not have the same fears as they have in the rest of the world.

The Mail and Guardian came with a story on the crisis in international banking markets. Both Bank of America and Citigroup are facing huge doubts over their abilities to cover their gargantuan losses. The effect of this on SA should be minimal as we have a very limited exposure to their debt problems due to the NCA and exchange controls.

Exchange controls which drew a lot of flack during the so called 'good times' have in fact been extremely useful.

Business Day also looked at this story and the difficulties faced by some of the worlds largest financial institutions.

Justmoney is glad that we don't have these scales of problems and would get itself a savings account in a nice safe South African bank and wait for the corrections and turmoil to pass on by.

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