The cut is coming

By Staff Writer
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The cut is coming

The MPC meets soon, on the fourth and fifth of February.

This is earlier than expected and the date was only changed on the 21st of January.

There has been some speculation about what this means, well apart from the fact that the MPC will be meeting a week earlier than was previously scheduled.

The Dispatch had a great line: 'Economists have laughed off suggestions that the South African Reserve Bank's decision to bring its monetary policy meeting forward suggests the central bank is keen to start cutting interest rates aggressively'.

While the Mail and Guardian came with the headline 'SARB move could mean aggressive cutting'.

Whichever is the correct response, well we will know soon enough. However the M&G headline does not seem to support the view of the economist quoted. The Dispatch's economists were all of the opinion for a 50 basis point cut or half a percent. The M&G also had their economist predicting a 0.5% cut.

The new inflation basket will be coming on stream in February and the new data it will generate will not be ready in time for the February meeting of the MPC.

A larger cut in the interest rate of say around 100 basis points would then, more sensibly, be left to a later meeting of the MPC.

The market is factoring in a total rate cut of around 300 basis points before the end of this particular rate cutting cycle. Too much or too little, too soon or too late can all have major effects on the market and a balanced moderate approach is going to deliver the most stability.

Fin24 looked at this story and their interviewed economists felt that a big rate cut was too risky and that a more moderate cut of around 50 basis points was much more likely.

This more moderate cut seems to be what the economists are expecting but they still hold out the possibility that a 100 point cut might just happen. The economic slowdown might trigger a more aggressive approach from the Reserve Bank and the Guv, Uncle Tito.

iAfrica came in with a very useful story reminding us of what has happened in the past and the effects that rate cuts can have on our currency.

An economist pointed out that comments that say that rate cuts could lift the Rand are dangerous. As he noted economics is a trade off, and cutting the rate make the Rand more vulnerable. The last time we were in a rate cutting cycle, the Rand lost massive amounts of its value and those silly exchange rates that we have just got used to now, never used to be at these levels.

Aggressive rate cutting could further slash the weight of the Rand and crash our currency out.

Those crying for aggressive rate cuts will be defending their interests, but these are not necessarily in the best interests of the South African economy as a whole.

The Times also looked at this story and was of the view that a 50 basis point cut was the most likely.

Justmoney figures on the Guv being true to form and making us listen to his speech before looking up with a little smile and giving us the decision. It looks very likely that the rate will come down, so when and if it does, check out your savings accounts or re-negotiate your homeloan in the light of the new rate.

 

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