12 December 2008

Fin24.com>>Economy>>More rate cuts to come

Johannesburg - Economists on Thursday welcomed the South African Reserve Bank's Monetary Policy Committee (MPC) decision to reduce the repo rate by 50 basis points to 11.5%.

"Today's interest rate cut will provide a lot of relief to the struggling consumers, although not sufficient to induce an increased household consumption pattern over the short term," said Kgotso Radira, economist at Investec.

"This decision confirms our view that economic policy is now directed at averting a prolonged slowdown in the economy."

But Radira added that more interest rate cuts are needed to stimulate consumption demand and economic growth in future.

"We expect another cut at the next MPC meeting and it is likely that Sarb will cut by more than 50 basis points as targeted inflation falls rapidly. We see interest rates being lower by more than 300 basis points next year.

Fanie Joubert, economist at Efficient Group, said a 50 basis point-cut is not a major announcement, but it will give some positive sentiment to the market.

"At these levels though, it is not too significant, but for sentiment's sake it is positive."

Over the longer term, however, people will see why it was better for the Reserve Bank to be more moderate in the early phase of a rate cut, said George Glynos, economist at ETM.

"At this moment, it is the right move and the market will take it in its stride."

- I-Net Bridge

Fin24.com>>Economy>>More rate cuts to come

Finally, some good news after weeks and weeks of doom and gloom. Not only will yesterday’s rate cut bring some relief for consumers, but it will also encourage businesses to spend and invest again, especially if there is potential for more cuts in the near future. Good news all around.

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