Marcus: Rate cut right thing to do

2012-07-19 16:21

Pretoria - South Africa's Reserve Bank unexpectedly cut its repo rate by 50 basis points to a record low of 5.0% on Thursday, citing a weak outlook for Africa's biggest economy against inflation that is likely to stay within target for an extended period.

The bank said the domestic economy appeared to be slowing further, resulting in a cut in its 2012 growth forecast to 2.7% - in line with the Treasury's forecast - from the 2.9% seen in May.

"Given the possibility of a more widespread global downturn, the risks to this forecast are seen to be on the downside, with the external impact coming through trade links and commodity prices," Reserve Bank Governor Gill Marcus told a news conference.

"The monetary policy committee views the prevailing conditions to be appropriate for further monetary accommodation to the economy that will not undermine the inflation outlook," she said.

Inflation was expected to continue to moderate over the next few quarters, reaching a low of 4.9% in the second quarter of 2013. It was then expected to remain fairly stable around the 5 percent level to the end of 2014.

Twenty-one of 23 economists polled by Reuters last week expected the Monetary Policy Committee to keep the repo rate, at which it lends to commercial banks, unchanged.

Only two of the economists polled saw a 50 basis point cut.

Prior to Thursday's move, the bank had kept rates steady since 2010 and the majority of economists polled had ruled out a cut this year.

The Reserve Bank is scheduled to hold two more policy meetings this year, in September and November.

  • tuco.angeleyes - 2012-07-19 16:35

    Ahhhh I could kiss you Gill. Like I said in the initial article I was planning to apply for a home loan next week and this couldn't have come at a better time. In these tough times a rate cut is a great wow! :)

      napolita.kio - 2012-07-19 16:42

      If a 50 basis point is that critical a factor to your applying for a home loan, then home loan is NOT for you; not now at least Home loans maturities range 20 to 30 years...Are you betting they will not go up during that time???

      lydonmcg - 2012-07-19 16:46

      If they were planning on applying for a home loan next week, then obviously this ISN'T critical to them applying for it. Logically, however, it is a welcome bonus. Over-aggressive, much?

      rory.hewitt2 - 2012-07-20 07:28

      Just make sure you fix your rate!

  • john.moodley.7 - 2012-07-19 16:38

    One more rate cut before the festive season would be great.

  • nico.vandermerwe.54 - 2012-07-19 17:05

    21 out of 23 economists were wrong? Or was Marcus wrong? I think we only blunder on and hope not to hit anything... Hope I'm wrong!

      napolita.kio - 2012-07-20 08:44

      Nico - I almost am certain that the drop in repo rate has more to do with trying to fight a possible/probable carry trade more than anything. Further, I believe the economists in their projects/guesses were looking at the economic factors ONLY and yet the reserve bank may have looked at more than that (like fighting "speculators"). I for one go with the economists. If anything, the world need higher interest rates at this point. The savers have been punished for far too long and for absolutely no sound reason other than to inflate asset prices.

  • lungile.ndyibithi - 2012-07-19 22:30

    Thank tata for a slice of bday cake, lol. This is best news ever.

  • winifred.watson.9 - 2012-07-20 17:20

    Well Mrs. Marcus, seems you have made so many people happy, but did you think about the old people you have robbed. We live off our investments and savings and now you have just taken a slice away us to give to those people who cant live within their means. Nobody, said life is easy, The old folk have paid their dues of the years, help sustain this country and now you just slice our income. We are not working, we have to pay the same electricity, rates, food etc as everybody else. Why cant you get your government to give the old people an incentive that provides a better income. Sorry Mrs. Marcus, I am not singing your praises, in actual fact I looking how to stretch my next few rands. I look around when I go to the supermarket, what do I see, all these big expensive merc's bmw's audi's and 4x4's parked outside. These cars are expensive, if people are struggling how can they possibly afford those type of cars. Time people learned to cut their cloth according to their income. Problem too much bling, it a cancer.

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