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Rate cut welcome but caution urged

Johannesburg - The Reserve Bank's 50 basis-point cut to the repo rate on Thursday was welcomed by many, including the property sector, but there were warnings from others.

Pam Golding Property group said it would provide the property market with a confidence boost.

The bank's monetary policy committee cut the repo rate to 5.5% following its two-day meeting.
 
“While there has been an uptick in housing transactions generally, a recovery in the housing market remains muted, with access to finance a hurdle which continues to preclude many homeowners from purchasing their own homes," it said.

"The gap between sellers and buyers' pricing expectations also remains challenging in many instances,” said CEO Andrew Golding.

Beware the pendulum swing

But First National Bank sounded a warning.

"I sincerely urge consumers to act with great caution when considering a new loan," said its CEO Michael Jordaan.

"Consumer confidence is already at high levels, indicating that consumption could escalate. However, we should bear in mind that interest rates could increase during 2011 in reaction to inflationary pressures that are already appearing on the horizon."

In contrast, DebtBusters, a debt management company, welcomed the cut.

"We are very pleased to see a further rate cut by the Reserve Bank at this meeting, and this will certainly help those who are struggling to pay their debts," said DebtBusters MD Luke Hirst.

"There are still too many households falling behind on their bond repayments, and this is going to be welcome relief."

He said there were over 8 million South Africans in arrears of three months or more.

Hirst warned consumers not to go on a "spending spree this Christmas", but to rather use the money saved through interest rate cuts on paying off debt.

"Interest rates may have further room to go down, but at some point rates will start going up and consumers do not want to have large debt balances when that happens."

Cosatu said the rate cut had come too late.

It said that if new investments in the manufacturing industry were to be made, further interest rate cuts would be necessary early in 2011.

The trade federation again took a swipe at monetary policy.

“The monetary policy of the Reserve Bank is out of line with the government's new growth path strategy, which requires policies geared to the promotion of manufacturing and the creation of decent and sustainable jobs,” it said.


 

 

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