MPC Makes Surprise Move and Cuts Repo Rate
In a rather unexpected move, the SA Reserve Bank Monetary Policy Committee (MPC) unanimously decided to cut interest rates by 25 base points in January 2020.
Repo Rate = 6.25%
This will be effective from 17 January 2020.
This means that the Prime Rate (which all the banks use to work out interest rates to their clients) will now drop to 9.75%.
Why The Unexpected Drop?
With so much pressure on the economy and consumers due to negative pressures from abroad and locally (like the whole Eskom issue), it seems the move may be intended to help boost consumer confidence and local economic growth (which has been projected to be very poor this year). Normally, boosting economic growth has not been a major consideration for the SARB though many people have wanted it to be, but there may now have been a subtle shift within the MPC.
The Last Cut For The Foreseeable Future?
With massive local inflation pending, big jumps in Electricity prices and basic food costs coming, the Moody’s downgrade and subsequent increase of Government debt expense it is likely that the Rand is going to take some serious knocks in the months ahead. Fuel prices are going to have to go up as the oil prices are fixed in Dollars.
This means that in all likelihood the future only holds increases in the Repo Rate for some time ahead. So, while this move may boost some consumer confidence and provide a small amount of relief for debt payers it may simply be a way to lower the starting point for all these likely future increases.