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Another interest rate drop could be on cards - economist

Sep 11 2017 19:46
Carin Smith

Cape Town – The monetary policy committee of the South African Reserve Bank could lower the interest rate by a further 25 basis points next week, in the view of Craig Lemboe of the Bureau for Economic Research (BER) at the University of Stellenbosch.

“Some analysts say there could even be a further 75 basis-point reduction on the cards; at the BER we keep a more conservative outlook for 25 basis points,” Lemboe said at the annual congress of Master Builders South Africa.

He pointed out that the local construction industry is technically still in recession and has underperformed the general economy for the first time since 2008.

“We have identified a crisis of confidence as a major problem. Consumers are not willing to participate in the economy due to this lack of confidence,” said Lemboe.

“So, if businesses are hesitant to invest, it leads to an impact on employment and private sector fixed investment. A lot is placed on what will happen at the ANC leadership election in December and business is adopting a wait-and-see game. This inhibits the building sector.”

Lemboe said consumers are reluctant to spend more, despite lower inflation.

In the view of the BER, SA economic growth in 2017 will be flat.

“We feel the construction sector will experience more pain the rest of the year as the private sector is constrained and government is challenged by concerns of shortfalls,” said Lemboe.

“Conditions should, however, improve through the course of 2018, although risks of sovereign debt and ratings downgrades remain.”

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