Reserve Bank cuts interest rates

2012-07-19 16:01

Johannesburg - The SA Reserve Bank (Sarb) has cut the repo rate by 50 basis points to five percent, governor Gill Marcus said on Thursday.

The prime rate would decline to 8.5%.

This follows nine consecutive Monetary Policy Committee (MPC) meetings where the repo rate remained unchanged at 5.5 percent, after it was reduced by 650 basis points between mid-2008 and November 2010.

The Sarb determines the interest rate based on its mandate to keep inflation within a target of between three and six percent.

Consumer price inflation was 5.5% for June while producer price inflation was 6.6% in May.

"The MPC views the prevailing conditions to be appropriate for further monetary accommodation to the economy that will not undermine the inflation outlook and has therefore decided to reduce the repurchase rate by 50 basis points to 5.0% from Friday 20 July 2012," Marcus said.

"While it is recognised that such a move on its own will not overcome the challenges facing the economy, it is felt that it can help alleviate some of the pressures faced by some sectors, and will act appropriately in line with its mandate."

"There is no easy decision in the MPC and this one was a particularly robust discussion. In the end it was a unanimous decision that this was the right thing to do. Given the conditions that are prevailing and our concerns going forward we thought it important to be proactive," she said.

  • kkgosiemang - 2012-07-19 15:31

    I love Gill marcus

      squeegee.pilot - 2012-07-19 15:37

      Whoopee Doo! I'm not sure if that is the correct financial language, but I'll say it again: Whoopee Doo!

      tuco.angeleyes - 2012-07-19 15:50

      Thanks Gill, I was planning to apply for a home loan next week. at least I can start off on a good note... :)

      Klippies - 2012-07-19 16:10

      Yeaaaaaaah baby!

      deon.devilliers.129 - 2012-07-19 16:21

      This is not good news for the rand and for foreign investment. Now Sa actual prime rate is -0.5% and thus is bad for SA as a country.

      gerald.king.589 - 2012-07-19 18:28

      @Deon. Ja, I totally agree there. One can go through the brilliant 'Capital Asset Pricing Model'. Try wiki if you got nothing around on it. Look for r, what happens to the stock if you drop r? Now what's bad for the JSE, is bad for the company, is bad for you. Some perspective, werent we all better of in the Y2K decade lifestylewise. Isnt money dang tight today despite the zero.

      james.lance.969 - 2012-07-19 22:04

      @deon and gerald - You are correct when saying that this will have an adverse effect on the rand and foreign investment, however, economics always works in both directions. In my opinion, a lower (not too low of course) rate suits a developing country like South Africa far better. The majority of people (not capital/money) in this country are borrowers and have sizeable amounts of debt. Debt that is usually accumulated until retirement which is then subtracted from people's pensions i.e. reducing the future purchasing power of the consumer. Also, the most powerful element of an economy (especially a developing one) is its SMME's. So a lower interest rate will motivate prospective entrepreneurs and reduce the capital needed for new business start-ups. Gerald said that if you reduce r (risk-free rate) then the value of stocks/bonds will fall which will adversely affect companies, this is true. However, the consumers are the life-blood of companies and by relieving them of a little financial pressure, they in turn will help companies in the long run, which in turn will also appease investors.

  • rakgoathe.matlala - 2012-07-19 15:34

    She was supposed to cut them by at least 100 basis points to 4,5%, life is tough out here, everything going up, long working hours, and salary stays the same.

      msika.gama.5 - 2012-07-19 16:01

      Why rakgoathe.matlala?? So that you people can start borrowing like there is no tommorow...and be more and more indebted.

  • snow.maleka - 2012-07-19 15:35

    Thanks,i love good news,this is a breather for now!

  • erick.mamba - 2012-07-19 15:36

    Great Stuff..Now lets get rid of tht debt people..

  • ken.marape - 2012-07-19 15:37

    She's the best governor to date!

  • chris.eaton.334 - 2012-07-19 15:38

    slippery slope from here for savers and pensioners..

      uwe.klopfer - 2012-07-19 15:44

      savers and pensioners are not the ones keeping the economy going...however debt is killing the economy...problem is that with lower interest rates many people will not use this opportunity to pay off crippling debt and THEN save or invest the spare cash...

      triumphant.voice.58 - 2012-07-19 16:41

      If you are saving in medium to long term fixed deposits, yes. But with higher rates of liquidity shares and property are better bets. But for pensioners, if you up the repo rate they pay more to live even if the interest rate is higher owing to higher inflation. Keep the repo rate down, and they have less interest but then prices escalate less. On the upside, you need something like 30 people employed to support 1 person retired for an equitable national ratio. High interest rates directly affects rate of employment since it costs capitol to run a company. Overall for economic sustainability, lower interest rates means, more jobs or sustained employment, SME startup and later grow to bigger companies - so the pensioners should invest in SMEs and grow their money that way!

      denny.cray - 2012-07-20 14:49

      @UweK - You are correct on debt killing the economy and that people may not use the opportunity to pay down their debts (it will encourage new debts - as evidenced by some of the comments here). I disagree with the notion of savers (like pensioners) not keeping the economy going. Where does real capital come from? Certainly not from a phony credit boom. Immediate consumption is the easy function. Sacrificing immediate consumption for the prospect of increased future consumption (saving) is what spurs *real* economic growth.

  • deon.louw.7505 - 2012-07-19 15:41

    This is a nice surprise.

  • winifred.watson.9 - 2012-07-19 15:42

    Happy for some but not good news for the older folk who have seen their investments and savings being cut to shreds. At this rate, why bother to try and save may as well put your money under the mattress. Very soon government is going to find more and more old people lining up for a pension grant. Most of these people were trying to live their life with a bit of dignity and refrain from standing in the pension queue.

      george.dinta - 2012-07-19 16:11

      kwaaa... but can we at least agree that it is hard out here...

  • raymond.billson - 2012-07-19 15:43

    wow thank you - going to help with the bond

      latiefa.pillay - 2012-07-19 21:56

      is this a 1 %drop that it has some relieve.please confirm when,coz i certainly will appreciate the change

  • petrivoges - 2012-07-19 15:47

    We cant knight Gill Marcus, but since we are busy changing street names I happily live in gill marcus street!

      denny.cray - 2012-07-20 14:57

      Sounds like the adulation Greenspan received. No downside to any of his policies! :)

  • adrienne.bateceruti - 2012-07-19 15:54

    Ah.....great news!! Makes the weekend coming up, even sweeter....

  • jacques.shepperson - 2012-07-19 15:58

    ...and now the rand will dive and consume the 50 point rate cut in food and fuel prices.

      Trevor Lovell - 2012-07-19 16:16

      Cheer up emo kid

  • alu.ntsandeni - 2012-07-19 16:01


  • Fanie - 2012-07-19 16:10

    Whooaaaa!!! Hope it gets the economy going. Will bring a lot of relief.

  • sibusiso.mkoko - 2012-07-19 16:12

    Hahahahahahahahaha! In ur face fnb, absa and standard. And those who like fixing interest rates, in ur face as well

  • bukiwe.mkutshulwa - 2012-07-19 16:14

    Thank you Gill Marcus

  • michael.newdigate - 2012-07-19 16:16

    Great news! Economy has been stale for a while. Let's air out that debt and make some intelligent investments on our JSE!

  • freddy.vanwijk - 2012-07-19 16:16

    This is the best news of the week. The only thing that spoils it is the upward trend in the price of crude oil if anybody has noticed it.

  • tatsee - 2012-07-19 16:24

    Yeaaaaaa Baybiee!!!Standard,lower my car payment NOW!

  • Mukondi Mapholi - 2012-07-19 16:35

    I'm glad I didn't fix any of my liabilities

  • peter.kelly.921025 - 2012-07-20 09:36

    Prime at 9.5% versus our biggest trading partners of 0.5% prime no somersaults just yet, business's are bleeding at these rates! We need to see at least 4 base points taken off prime and non of this nonsense we cannot do it!

  • dhe.bat.5 - 2012-07-20 11:49

    This is actually NOT good news, because next month the petrol price is going to HEAVEN. The government has to make up for their so-called 2-previous petrol prince reduction and the only way to keep us smiling is to introduce the cuts of interest rates with a lame 50 basis points and still milking money from the public. Now I call this FREEDOM OF STEALING FROM THE PUBLIC.

  • denny.cray - 2012-07-20 15:57

    Why is it that most of us would disagree with government dictating the prices of the goods and services we buy and sell every day but we are quite happy with them to dictate the cost of the money we use? (Literally half of the transaction anyway in almost all instances).

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