Johannesburg - SA was not in recession and was unlikely to slide into one, said Tito Mboweni, governor of the SA Reserve Bank (Sarb).
"Certainly, sub-sectors of the economy are in recession but the whole economy is not," he said, speaking to journalists at Thursday's announcement of a 50 basis point cut in the repo rate, a decision taken by Sarb's Monetary Policy Committee (MPC).
The repo rate, which is the rate at which Sarb lends to banks, is now 11.5% and is to come into effect by December 12. The prime lending rate, which consumers get, will be 15%.
"It is unlikely to go into recession," Mboweni said of the economy. He added that inflation was scheduled to fall within the SA government's target range (3% to 6%) by the third quarter of 2009.
Fanie Joubert, an economist for the Efficient Group, agreed there were widely ranging experiences in different parts of the ecomony. "The wholesale and retail sector is struggling, but the transport and financial sectors are still rising," he said.
However, not all economists agree with Mboweni that the country is free of recession, which is deemed the case after two consecutive quarters of negative growth.
"Mboweni's comments are a reasonable assessment of the SA economy," said Chris Hart, senior economist at Investment Solutions. "I'm in the camp that believes we are in small, short-term recession, but I believe the slowdown is cyclical and temporary."
Said Mike Schüssler, an economist for T-Sec: "I think I'm one of those people who says that we have entered a recession period. The economy has gone down so quickly.
"If you look overseas, the only one country forecasting not to be in a recession is Australia."
The dramatic loss of jobs, the slowdown in the amount of flights, the downturn in the motor industry and commodity prices coming down over 50% was evidence of a recession. "Those things are all huge," he said.
Further cuts
Mboweni would not be drawn on another cut in the interest rate at the next MPC meeting in February. "I don't know," he said when asked about the possibility.
Economists polled by Fin24.com, however, said another cut was likely. "He's started a cycle," said Johan Botha from Standard Bank Economics.
Said Hart: "It would be very disappointing if we did not see consecutive rate cuts next year."
Mboweni said the MPC had discussed sanctioning a much higher cut in the repo rate at this latest meeting, but that it had stepped back from the option.
"Clearly, a 100 basis point cut was discussed but it was not pursued," said Kevin Lings, an economist for Stanlib. "You really can't judge what the market reaction would be to a 100 basis point cut." Lings was speaking on SABC 3.
"Sarb is also still concerned about inflation, even though it has forecast inflation would fall," said Lings. "Overall, it was a good decision."
George Glynos, an economist at ETM, said the MPC decision was "a correct" one. "It achieves a good balance between being sensitive to economic risks while still looking to achieve the set inflation targets (in a band of 3% to 6%)."
Even though we are still twice the upper band of the inflation target, Joubert felt that in the middle of 2009 SA could move into target range, albeit only temporarily.
Commenting on the potential risk of too-heavy interest rate cuts to the currency, Sizwe Nxedlana, an economist for Nedbank, said the currency would remain volatile."One would see the value of the rand increase, but in a volatile way," he said.
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- Fin24.com