Repo rate cut welcomed

Friday, July 20, 2012

Governor Gill Marcus announced the decision on Thursday.

The MPC has decided to reduce the repurchase rate by 50 basis points to 5.0%. The prime rate will now decline to 8.5%.

"While it is recognised that such a move on its own will not overcome the challenges facing the economy, it is felt that it can help alleviate some of the pressures faced by some sector," Marcus said following the committee's fourth meeting this year.

The South African Chamber of Commerce and Industry (Sacci) welcomed the decision.

"This decision will go a long way towards alleviating cost pressures on households and businesses, (and SMEs in particular) although the measure in and of itself is unlikely to have a significant impact on improving economic activity," it said.

The cut was a welcomed indication that long-term inflation is expected to moderate.

Prior to Thursday's cut, the MPC had kept the repo rate at 5.5% for the last nine meetings.

The Reserve Bank revised its economic forecast for 2012 and 2013 slightly downwards. Gross Domestic Product is now projected to moderate to 2.7% from a previous 2.9% before it picks up to 3.8% from a previous 3.9% in 2013.

In a research note, Nedbank economists said the decision was unexpected but not unreasonable.

"It was unexpected but not unreasonable given the rapid deterioration in the global economy in recent weeks. We had put the chances of a cut at 40%. What happens next depends on whether the combined global monetary stimulus sparks some recovery later in the year (in which case rates will remain stable) or whether the global economy slips into recession (expect further easing)," said Nedbank.

Nedbank, however, added that rates will remain stable well into 2013.

The MPC will hold its next meeting from 18 - 20 September.