Ahead of Thursday’s announcement of the repo rate by the South African Reserve Bank’s (SARB) monetary policy committee, some economists believe consumers could be in for another interest rate cut.
“I think a cut of 25 basis points or just perhaps 50 basis points can be expected,”stated Econometrix economist, Mike Schüssler.
In July, the Reserve Bank proved most experts wrong by cutting rates. SARB ultimately uses the repo rate to keep inflation in check. And with the inflation rate now within the target bounds of between 3% and 6%, experts believe it to make a strong case for yet another cut.
Andre Botha, dealer at TreasuryOneagreed: “We are leaning toward another rate cut on Thursday. One of the factors is that the inflation figure is well within the inflation targeting band of the Reserve Bank plus we have anaemic growth and the Reserve Bank will want to introduce measures to start the growth engine again. Lower interest rates would be one of the measures and now could be an opportune time to do it with the economic events coming up.”
When asked what this could mean for the consumer, Schüssler added: “It will help people with paying their debt off and will ultimately help economic growth. As a result, I think growth is likely to be 0,1% stronger this year and 0,25% stronger next year and 0,2% stronger in 2019. South Africa has the potential to grow above 2, 2% in 2019 if not close to 2, 5%.”
TreasuryOne’s Botha also weighed in: “While it will bring a little bit of relief as debt will be little cheaper and this could boost spending which would be a good economically, it would also dissuade savers which is not good for an economy.”
Although the alleviation of rate pressure beckons good news for the country, the economy and the consumers’ pockets, Schüssler believes more can be done.
“Yes, the rate cuts will help. But they are not the only thing we need. We need politically sensible policy; stability at the top of government and a big fight back against corruption and we need to see the government start to get closer to supporting business and not shouting them down. Interest rates are a short term solution and we need the structure and fiscal policy to get into the act too. Politicians and unions should get better relationships going with the business sector,” Schüssler explained.
He further believes that this trend will continue and that consumers could benefit from another rate cut in November. “It is likely that we should see South African rates down by 75 basis points in total this year.”
Botha however cautioned against pre-empting November’s decision. “The rate at which the Reserve Bank will start to cut the rate will be dependent on a lot of factors, and calling for a November rate hike might be a bit premature as we still have the Mid-term budget speech before that, that could send the Rand higher and have a negative effect on inflation. Furthermore the effect on the drought also needs to be factored in with higher food prices the cause of inflation. The rebound in the oil price also will have an effect on the decision in November.”
SARB will officially make its announcement on Thursday, 21 September.
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