Business questions ‘reserved’ repo rate reduction

The Reserve Bank’s decision to cut the repo rate yesterday by 25 basis points has been widely welcomed but some business quarters have called the reduction too reserved.

The Black Business Council said consumers could do with a 50 basis point drop in interest rates, a sentiment shared by property mogul Samuel Seeff.

But the Monetary Policy Committee elected to approach with caution, particularly given the precarious position in which the economy finds itself.

Speaking after the rate reduction to 6.5%, Reserve Bank governor Lesetja Kganyago said it should be kept in mind that economic growth, currently at 0.6%, was less than half where it was thought it would be earlier this year.

According to estimations made in the first quarter (Q1) the economy was expected to grow at 1.8%.

However, quoting from a Q2 survey by the Bureau for Economic Research, Kganyago added that headline inflation for the rest of the year would most likely be 4.8%.

Although the economic outlook is generally better and the rand is buoyed by renewed investor interest in South Africa’s emerging market prospects, the longer-term potential debt effects of a steeper reduction prompted the central bank to rather go for 25 basis points – for now.

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