Repo Rate Cut For First Time in Four Years
Financial News
The South African Reserve Bank (SARB) has cut its main lending rate by 25 basis points, bringing the rate down to 8%.
This is the first rate cut in over four years
Good News
The SARB Monetary Policy Committee finally decided to cut the interest rate because inflation has been falling faster than expected.
After reaching a high point earlier in this year, inflation has now dropped to below 4.5%, which is within the central bank’s target range. They have been holding it out as a goal for so long that now that the figures have hit this figure they probably feel forced to relent and lower the rate.
Legitimate Reasons
It seems that the SARB believes this drop in inflation will continue, so they felt a small rate cut would help support the economy without taking big risks.
There are a number of other legitimate reasons for such a cut. For example, the economy is expected to improve with fewer power blackouts and more consumer spending due to recent pension reforms (the whole “two-pot retirement fund thing). The rand has done well verse the Dollar recently and petrol prices have dropped. All positive factors.
‘This repo rate cut also follows a similar move by the US Federal Reserve’
This repo rate cut also follows a similar move by the US Federal Reserve, which reduced its interest rates by a larger amount as well as similar cuts locally in Southern Africa.
The SARB, however, chose to be a little cautious, with Governor Kganyago stating that it’s important to take measured steps rather than making large changes. The bank’s goal is to make sure inflation stays under control without putting the economy at risk.
Going forward, it is likely that another rate cut might happen later in the year, as inflation continues to settle at lower levels.
This small rate cut will hopefully leave a little more cash in consumers pockets enabling them to spend a little more at local shops and thus help drive the local economy.