Rate cut: little relief for BEE
Dec 14 2008 15:16
Andile Ntingi
Johannesburg - The Reserve Bank may have cut interest rates by 50 basis points to cushion the blow on hard-pressed businesses and consumers, but this measure will not provide enough relief for black investors, whose empowerment deals are mercilessly under the water.
Governor Tito Mboweni last week received wide cheers across the spectrum for his Santa Claus deed ahead of Christmas. But black economic empowerment (BEE) investors say although the rate reduction will decrease repayment costs on their loans, it will do little to salvage the value of their deals, which have been diminished by heavy losses on the local bourse.
"The cut will assist from a loan repayment point of view, but the problem for many BEE deals is the poor performance of the JSE. It is down 30% this year and 50% from the time the transactions were done.
"I don't think rate cuts will assist BEE because the businesses that the black investors have stakes in need to perform, they need to grow revenue and profits. Rate cuts will not help you achieve this," said Sandile Zungu, executive chairperson of Zungu Investments Company.
Litha Nyhonyha, executive chairperson of Regiments Capital, has welcomed the cut but feels Mboweni could have gone further than he did.
"We were expecting a 100-basis-point cut from the Reserve Bank, but I don't think the cut will make much of a difference. Perhaps at this stage he is signalling a turn in the interest rate cycle. Maybe in the next Monetary Policy Committee meeting in February the Reserve Bank will cut again," said Nyhonyha, whose company has BEE stakes in listed firms such as Capitec Bank and telecoms group Vox Telecom.
The bank's decision to slash the repo rate has pushed it to 11.5%, triggering a drop in prime lending rates to 15% from 15.5%.
Serious slowdown
First National Bank property strategist John Loos said the rate reduction could boost house prices and lead to an increase in demand for home loans.
"An expected rate-cutting trend is expected to lead to a gradual improvement in residential demand as 2009 progresses, which would feed through into growth in demand for new mortgages.
"As for house prices, they are expected to show some recovery only near to 2010, delayed by the existence of an oversupply on the market which could take time to be mopped up," he said.
Some economists believe that Mboweni will be forced to cut interest rates again to avoid the South African economy slipping into a serious slowdown.
"With the spectre of deflation looming globally and the economy growing below its potential, the Reserve Bank can be expected to trim rates further," said Brait economist Colen Garrow.
The latest rate reduction implies that home owners on a R500 000 bond will pay R185 less, R371 less on a R1m bond and R742 on a R2m bond.
The cut could also stem house and car repossessions, which have soared since the bank started hiking rates in June 2006. Between 6 000 and 7 000 cars a month are repossessed.
- City Press
