Connect with us

Hot News in World

Rate cut good news, but don’t get too excited – economists

Public Protector: We're not fighting with Gordhan, we want to help him clear his name


Rate cut good news, but don’t get too excited – economists


The SA Reserve Bank’s decision to cut the repo rate
by 0.25% has been met with cautious optimism by analysts, who – while welcoming
the move – have warned that relief is more likely to be short-term, and that
room for further easing is limited.  

FNB chief executive Jacques Celliers said the rate
cut – which would mean a reduction in the prime lending rate from 10.25% to 10%
– would assist cash-strapped consumers in coming months, but cautioned the
public not to rush into borrowing.

“Following a contraction in GDP during
the first quarter, we look forward to improved conditions later in the year
based on expectations of a good rebound and this, coupled with lower interest
rates, may aid the anticipated recovery.

“However, the SARB is correct in its stance that
interest rates alone are not a primary driver of the economy, consumers will
have to continue managing their expenses prudently. I urge consumers to take
every opportunity to reduce expenses as lower interest rates create an
opportunity to build a buffer into their budgets when they consider long-term
loans for a house or a new car,” he said.

He advised consumers to weigh up the cost against the
benefits of long-term loans. “Sensible borrowing is a valuable financial tool
to enable important moments in a consumer’s life such as housing, education and
unexpected emergencies. Loans should be used in a way that balances the cost of
long-term gains with day-to-day living expenses,” he said.


Mamello Matikinca-Ngwenya, FNB Chief Economist, said
the central bank’s decision to cut the repo rate by 25 basis points was in line
with expectations. “Weak domestic demand and the inability of corporates
to pass on costs to consumers should keep inflation contained,” she

SA should not expect a “meaningful
improvement” in growth in the year ahead, she added. “We expect
growth to lift to 1.2% in 2020 from 0.5% in 2019, as such muted inflationary
pressures along with very weak growth point to a more accommodative monetary
policy stance.”

Matikinca-Ngwenya argued that a global shift towards
more accommodative monetary policy – with the Fed expected to ease rates as
well – had provided room for easing monetary policy in SA.

“While we believe there is scope for another rate
cut, the bank will, however, need to assess fiscal risks before attempting to
ease policy further,” she said.

Peter Kent, Co-head of Fixed Income at Investec
Asset Management, said the cut was in line with “our long-held view that
the SA economy is experiencing sustained disinflation, driven by the lack of
demand in the economy and the SARB’s determination to get inflation to the
middle of the target band at 4.5%”.

“The SARB has long maintained that the
impediments to growth are structural rather than cyclical, and that South
Africa needs reforms rather than rate cuts. While this view holds true, it
appears that they are finally acknowledging that there may be a cyclical
element to the growth slowdown too and have accordingly responded by easing
policy,” Kent said.

However, he added, it would be necessary to
“maintain a careful balance” in the months ahead. According to Kent,
this means the degree of easing that is realistically possible is limited.

“While there is a strong argument from a
cyclical perspective to cut further, South Africa’s litany of structural
problems means that the extent to which they can ease has a floor – in our view
at between 50 and 75 basis points overall,” Kent argued.

“More than that would require a meaningful
improvement in the structural impediments to growth. For now, we are simply too
dependent on foreign capital to fund our fiscal and current account deficits.”


Source link

Continue Reading
You may also like...
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *


To Top
error: Content is protected !!