Interest rates: More cuts coming, but pensioners won’t be happy

Kganyago’s Sarb slashes rates more aggressively to mitigative impact of Covid-19.
SA Reserve Bank Governor Lesetja Kganyago’s usual conservative policy stance has been challenged by the pandemic. Image: Moneyweb

Few would have predicted at the start of this year that South Africa would see big interest rate cuts, especially considering the notoriously hawkish South African Reserve Bank (Sarb) under governor Lesetja Kganyago.

The bank’s Monetary Policy Committee (MPC) only cut the repo rate by 25 basis points in January. However, since then it has effectively slashed the repo rate by 200 basis points and is eyeing five further possible rate cuts of 25 basis points over the next year.

The move comes as it looks to up liquidity in business and tries to put money back into the pockets of South Africans who are facing a major financial fallout from the global coronavirus pandemic.

Read: Sarb cuts interest rates by another 100 basis points

On Tuesday, the Sarb surprised the market with a one percentage point repo rate cut. It comes within a month of the surprise 100 basis point cut at the MPC’s meeting on March 19. Most economists surveyed in early March were expecting a modest 50 basis point cut, considering the previously conservative policy stance of Kganyago and his MPC peers even as the South African economy slipped into a recession.


The decision in March was Kganyago’s first full one percentage point repo rate cut since taking office in 2014 and the Sarb’s first rate cut at consecutive MPC meetings since 2011. Tuesday’s further cut came after the central bank called an urgent early meeting of its MPC.

The unusualness of the move could be seen in the bank first announcing it on social media platform Twitter. Kganyago later said the plan was to announce the cut simultaneously on its website but technical issues prevented this.

Speaking on Tuesday, Kganyago said the MPC debated the matter over the Easter weekend as the decision to make the cut in March did not take into account the decision by government to put the country in lockdown, which happened after its last meeting.

The latest rate cut decision was reached unanimously by all members of the MPC and would take the repo rate to 4.25% per annum, effect from April 15.

The Sarb’s next MPC meeting was only scheduled to take place from May 19 to 21.

The move will see the repo rate reach its lowest level since 1973 and will result in SA’s prime commercial lending rate dropping from 8.75% to 7.75%.

While the move has been welcomed by business and many cash-strapped South Africans, pensioners dependent on interest from savings will not be happy, especially with further rate cuts on the cards.

Read: Sarb announces new liquidity measures to support banks

“The implied path of policy rates over the forecast period generated by the [Sarb] Quarterly Projection Model indicates five repo rate cuts of 25 basis points extending into the first quarter of 2021,” Kganyago noted in his MPC statement on Tuesday.

“Monetary policy can ease financial conditions and improve the resilience of households and firms to the economic implications of Covid-19. In addition to continued easing of interest rates, the bank has taken steps to ensure adequate liquidity in money and government bond markets and to ease capital requirements to free capital for onlending by financial institutions. Each of these steps make more capital available to households and firms,” he added.

Read: Sarb announces new liquidity measures to support banks

Kganyago, however, warned yet again that monetary policy could not on its own improve the potential growth rate of the economy or reduce fiscal risks.

“These should be addressed by implementing prudent macroeconomic policies and structural reforms that lower costs generally, and increase investment opportunities, potential growth and job creation. Such steps will further reduce existing constraints on monetary policy and its transmission to lending,” he said.

His comments came as business leaders and economists were looking to Finance Minister Tito Mboweni’s Treasury briefing on Tuesday around a possible financial stimulus package from government.

Mbonweni, however, did not make any major announcements around such a package at that briefing.

Talks are underway with several multilateral financial institutions including the World Bank and New Development Bank. Mboweni may make an announcement later this week, following a cabinet meet scheduled for Wednesday.

Listen to Nompu Siziba’s interview with Sanisha Packirisamy, economist at Momentum Investments:



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Pensioners have been making a killing… 5 + years of high interest rates… The economy is sinking… Pensioners will be fine

Pensioners do not get annual increases. They do feel the effects of inflation, so how do you figure that Pensioners will be fine in the future with a cut so far this year of a third of their interest earnings?

how much percentage of the population is pensioners? I don’t know but I know we are not a JAPAN with high median age. The economic decision should have bigger impact than just for a select few. In anyway interest rates are still close to inflation. The pensioners are still in a better place than many

This on top of a likely steep drop in distributions from REITs which many pensioners hold for the yield.

The message I get from these interest rate cuts is to totally indebt yourself to the point of bankruptcy and government will take care of you. Living within your means and trying your best to save gets you considered as one of the suckers of society.

So why are pensioners better than the rest of us… We are seeing rental income decrease? We are faced with income reduction?
Some of us our tenants are not working at the moment because of industries are shut… Rentals had to be readjusted downwards sometimes 40% reduction for 2 months and it may get worse… Property prices … And an interest a pensioner earns is supposed to triumph that? At least the interest rate reduction are cushioning some of this debt we have to service.

They are still getting close to inflation… They are fine…

@tbos-you are obviously clueless. and unable to grasp the ramifications of this stupid move.

For one, the move isnt stupid! Its an interim measure to a situation of urgency. It’s also a bigger picture than the one you’re looking at. U jus mad that it’s not serving your ambitions at present.

That’s BS and you know it. Taking the useless performance of the Rand into account pensioners have been going backwards.

Everyone has been for crying out loud!

Clearly you have no idea what it is like to live with 0% increases.
Local government rates and services increase ahead of the quoted inflation rate, medical expenses far outstrip this rate and general inflation must too be faced.
All of this must be borne by the pensioner who generally through age is excluded from the job market.
This results in a very vulnerable group who has little leverage to address the issue.

Tbos you show your ignorance, pensioners interest on savings does not increase as do wage increases. They have a fixed sum invested on which they receive interest for the rest of their lives. This capital outlay does not grow, their monthly interest is only calculated and received on this amount. However the cost of living goes up every year and yet the pensioners interest income remains the same (Assuming the interest rate does not change). Perhaps you could do the maths yourself and see how you would survive and meet all your living costs without any increase in income for 10 years or as in this scenario a decrease in income. A sensible approach would be for the Reserve Bank to exclude pensioners from such rate cuts and have a two tiered interest rate at Banks. (I.e.
one for pensioners and one for non pensioners)

No one s wage is going up this year, they are very lucky if it does… Majority are faced with income reduction or no income… Salaries, rentals, properties are all on a contraction… Pensioners are still getting income close to inflation… And who knows this loose monetary may just prop up some assets they own… This argument of pensioners does not win

tbos, what are you smoking? You don’t have a clue!

Interest on savings is NOT an INCOME. You are a F%^&ing idiot.

tbos ….you comment merges from someone who perhaps is intellectually challenged

If not …then add facts to your fiction

A pensioner once told me, “The tree doesn’t grow to the sky” … obviously pensioners know that interest rates go up and down… 5 years of increases will be followed by years of reductions – just like the saying in the Bible (something along those lines), and pensioners don’t believe otherwise.

Those,if you’re lucky you will reach retirement age. If you think this is not a problem for the retired,I suggest you get a financial advisor to help you plan for YOUR retirement.

Less than 5% of pensioners in this country are financially okay, are “fine.”

Think there’s going to be lots more to come. This could end with rates near zero

Infinite Borrowing when int is near zero.

I think the size of loans are huge in this country … the Banks know they have a problem…. and there is nothing they can do.
except rely on the reserve bank.

… our Rand will finally be worth nothing.

The Rand is not even good for toilet paper. Buy gold people.

In real terms, maybe. I doubt whether nominal repo will drop very far below headline inflation.

By the banks own admission – interest rate cuts won’t do much other than punish savers and quicken inflation..

Kganyago, however, warned yet again that monetary policy could not on its own improve the potential growth rate of the economy or reduce fiscal risks.

So we’re back to Ramareforms and pipe dream promises that haven’t materialized.

Great to see everyone in the ANC doing his/her bit to further aid economic destruction and increase uncertainty. VIVA ANC VIVA !!!

They destroy everything they touch. Pensioners wont escape. In fact they will be made to pay.

Take your money offshore where they can not touch it.

These are sick puppies.

They now have a further 500BN to steal…. they have lots of eating to do.

So if the banks are giving payment holidays for those who pay off debt so they can survive, what are they doing for banks? Or do those who live above their means get all the benefit and the vulnerable must suffer? Low interest will not be an economic stimulus in crisis times.

So while this is being proactive especially for those who are not going to lose their jobs. Unfortunately for everyone else it means very little if nothing at all. I saw a newspaper article earlier this afternoon where the writer went onto mention when last interest rates were this low and it was a very long time ago. The problem is as houses start being repossessed as a follow on to job losses and they will that I will put in black and white for you, this will cause the price of property to crash to the floor.
Luckily those who have money and jobs will be buying property at rock bottom prices, Yippee yahoo. The problem is that many people are going to lose their jobs and their houses and may never get at least one of those and possibly both of these back in their lifetime. We sit on a double sword with an extremely sharp edge, I feel that this country will still get its civil war that it has successfully avoided for so many years and ironically it will have nothing to do with race and everything to with “have” and “have not”. We need a complete rethink here as the road ahead has changed and the old road-map won’t get us through this journey. The old adage of “the bigger the doubt the bigger the hammer” won’t suffice here. Creating jobs and this new economy should be of prime importance. While the ability to pay bills is important having a job / income is the vital ingredient and achieving that.

By cutting rates just let’s the inflation genie out the bottle.

It is the wrong thing to do

So, finally SARB folds under the pressure from government. Since when does SARB have a dual mandate, i.e. price stability and economic growth? This won’t do much for economic growth. We are a small economy with a huge gap between the rich and poor. Most of the poor don’t even have access to debt facilities. Rather than being an incentive to save more (SA has a poor savings culture), it is an incentive for those who cannot afford it to get more into debt and we know how that played out before. As with all market actions, there are winners and losers. Covid-19 will permanently change consumer behavior. There is no quick fix for our economy. The only way to real economic growth is through fix direct investments by foreigners. With junk status, yeah? We need to become an manufacturing and export country and this is a far cry from being import driven.

Unless the website is wrong RSA retail savings bonds are offering extremely attractive rates (eg: 9% for 3 yr fixedor 11.5 over 5 years & pd monthly if u want ):
Trouble is you are investing directly into Govt (read ANC) so where will the money actually go ?? On the other hand I guess if Govt cant repay at term end then any RSA Deposit will be worthless .

And there’s the rub.
Will you get your investment back at end of term?

So now I have even less incentive to hold Rands? Do you want more capital flight? I’m confused by the SARB.

The IMF was frantically looking for a mechanism, an excuse actually, to debase currencies in an orchestrated manner to lower the debt load of governments in nominal terms. With debt/GDP levels as high as it is, they have no alternative but to default through devaluation. First, they identified global warming as a convenient scapegoat, but now, out of the blue, a much better excuse has emerged from a partnership of a bat and a pangolin.

This will be the “economic reset” that every left-leaning commentator was looking for. This reset simply entails the wiping clean of debts through the concealed default of currency devaluation.

The one moment the world has a fiat currency debt problem, and the next moment a partnership between a bat and a pangolin comes up with the solution. They write a piece of code on a strand of RNA, wraps it in a protective membrane of fat, and sends it via a human courier to the IMF, World Bank and the WHO, and the debt problem disappears.

Moral of the story? Bats and pangolins are problem solvers.

Not a single developed country go to where they are off the back of a rapidly depreciating currency – not one.

Depreciating against What ?? Relative weakness vs other currencies is all that Matters : Vs the Runt everything has Strengthened !

Versus any ‘safe haven currency’.

This is stealing money from all people + pensions funds in SA. 90% of debt in SA is local. Therefor government the main beneficiary. If usd/zar goes to R25 then we will see you this strategy backfires.

Economics of buying power is the opposite of producing. Our local state owned enterprises did see birth with producing in mind. Not a milk cow for the clever. Obvious this need of producing is a China thing today. Locally all is set for strength of buying. Comes in the happiness from producing country’s having clients like S.A. Remember Australia. Going all out to makes SA dreams come true. Having one strong competitor less in the field of mining left them living in happy times to. One important tool is interest rates. Only a self supporting country can decide the high or lows. Otherwise friends have to agree or order. To prevent a Zim chaos. Likely this lowering one was ordered.

And then we are forever hearing the lament: Why don’t South Africans save? Well, now you know.

should have cut rates earlier to avoid the 3 technical recessions in just 3 years from 2017-2019; takes a global pandemic for them to do the right thing, hope it’s not too little too late!

Sarb cant fix the problem becuase they are the problem here along with government. The free market is desperately trying to overturn all the intervention and they wont allow it. A massive deflation is needed to wash out all the rubbish.

Seems Government thinks we are a little USA, print money lower interest rates etc. Wake up we produce very little compared to China, the USA etc. All that is going to happen is that we are depreciating our Rand causing misery for all.

”The further backward you look, the further forward you can see’’

Winston Churchill

No – pensioners haven’t been making a killing – some of them lost more than 30 % of their hard-earned funds!

Pensioners beware – take note where your pension funds in your Living Annuity is invested!
I have noticed a lot of millennium ‘’screen watching junkies’’ here, with almost no experience (besides what you can pick up from Google on investment products etc.), and/or a couple of years at Wits, UCT, etc.
I clearly remember the ‘’ Third Circle MET Target Return Fund’’ (a local Unit Trust) cowboys a couple of years ago – who lost 66 % in two days!
Methinks it was very easy for them to fool their away around it at first, as the margin account at the JSE/Safex was reported as cash while the ‘’investment’’ was kept in a high leverage Option contract – the so-called zero-cost exotic option structures.
The Condor Options strategy (when the market became volatile), crashed into a butterfly spread option and all hell broke loose. The investors were left with a margin call. The moral of this story was that these so-called highly educated millennials were highly qualified derivative dealers (without any experience) – but the money was lost, before the Index bounced back 90 % in the next 9 trading days thereafter. Pensioners were told that these so-called Unit Trusts were long-term investments – and some pensioners did lose a lot of money on this rubbish!
Pensioners with LA should scrutinize their fund managers ‘’Fund Fact Sheets’’ very carefully – or suffer the consequences on their hard-earned savings.
I have expressed my opinion on this Web a couple of times (and as per usual was insulted etc), but after another severe market crash after calling for the Regulators to investigate the market shenanigans due to the risk-reward ratios of these products for shorter termers like pensioners. These types of derivatives won’t really add value, nor do they protect anyone who happens to be at the wrong end of the option. Why should retirement funding portfolios be invested in derivatives at all? The problem also seems to be that you can leave your funds in the hands of an incompetent bunch of speculators without any accountability.
I think the improper and imprudent use of derivatives and unprofessional way that it is sold to the pensioners, is a confirmation that the fund managers themselves don’t understand these products they are investing their client’s funds into.

Wise words from a true Master, who has a lifetime of experience in his field. A beautiful sight to behold.

Regarding that Third Circle fund, you have a lot of it correct. Those option strategies were in fact kept in margin accounts, held by a broker and were not stated on any of the fund fact sheets. It is also highly debatable whether they were even allowed as part of the fund’s mandate. In terms of the derivatives dealers executing these trades, yes they were highly qualified but they also had the necessary experience but many of these options trades were just too lucrative for the broker to turn away. You have no idea what went on in those margin accounts.

My total investment market value capital invested in a LA platform has shown :

Q1 2018 to Q1 2019 = gain of + 3.5%

Q1 2019 to Q1 2020 = loss of -14%

there was a decline from Q4 2019 to Q1 2020 of 12.2% ! eish!….

End of comments.



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