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Johannesburg - Default rates have declined dramatically,
resulting in bad loans in the banking sector falling sharply thanks to 10
interest rate cuts by the Reserve Bank between June 2008 and November last
year.
Now consumers and businesses are hoping that Reserve Bank
governor Gill Marcus will reduce interest rates this week to further lower the
level of indebtedness.
Marcus will chair the Reserve Bank’s monetary policy committee meeting, which will decide what to do with interest rates in the face
of a sluggish economic growth, high unemployment, and rising food and fuel
prices.
The Credit Bureau Monitor, which is published by the
National Credit Regulator, showed that 18.6 million South Africans were credit
active and that 8.6 million consumers had impaired records.
However, thanks to 10 interest rate cuts by the Reserve Bank
between June 2008 and November last year, the default rate declined sharply.
Statistics South Africa figures showed the total number of
civil judgments recorded for debt decreased by 28% in the second quarter of
this year. Local lenders were owed a combined R1.21 trillion by consumers.
Economists would like to see the central bank governor
giving the economy a stimulus in the form of an interest rate cut, a move that
could put more cash in the pockets of consumers, helping them to either reduce
their debt or increase spending.
Zandile Makhoba, an economist from Econometrix, said
distressed borrowers could be the biggest winners if Marcus cut rates.
"If the repo rate goes down, households are less likely
to get more bad judgments and civil summonses.
"Lowering interest rates would benefit households
because prices of essential goods such as food and fuel have been
increasing," she said.
Her comments were supported by banking executives, who said
that a rate reduction could improve the health of struggling borrowers.
Sim Tshabalala, the deputy chief executive of Standard Bank Group [JSE:SBK], said an interest rate cut should be positive for both consumers and businesses.
Bric countries hike rates
"Financing and debt servicing costs should decline,
impacting on the cost structures of households and businesses," he said.
Gift Manyanga, the chief executive of EasyPlan, First
National Bank's low-cost banking unit with 117 branches, said: "An
interest rate cut could provide major relief to those customers who were on the
borderline of credit affordability. The improved affordability may reduce
chances of customers defaulting on their debts."
Makhoba said the growth in household credit extension was
starting to flatten and this could imply that households no longer had an
appetite for new credit.
She said: "I, however, do not think interest rates
will be lowered because consumer inflation has been on an upward trend and is
likely to breach the monetary policy committee's target of 6% later this year
or early next year."
Consumer inflation last month was hovering at 5.3% year-on-year.
Her comments come after some central banks in the Brics bloc
of countries - Brazil, Russia, India, China and South Africa - this week hiked
interest rates.
The Reserve Bank of India on Friday pushed the repo rate up
for the 12th time since March last year by 25 basis points to rein in high
inflation.
However, Russia's central bank this week unexpectedly
chopped the repo rate to 5.25% and Brazil reduced it to 12%.
Eskom economist Kabelo Masike did not think interest rates
would be lowered.
"If they are changed, this will not have a significant
macroeconomic impact. It is hard at this point to think that they will be
changed because credit activity levels are benign."
He said the anchor of South Africa's inflation regime was
inflation, which was rising.
"In the event of an extreme downturn, the Reserve Bank
would lower interest rates. But this is highly unlikely because I don't think
the economy has reached dire straits," said Masike.
"Though things are difficult in our economy, they do not warrant a rate cut at the moment," he said.
- City Press
