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Sarb cuts rates as economy weak, inflation steady

The MPC makes first rate cut since March 2018.
Sarb governor Lesetja Kganyago. Picture: Moneyweb

The South African central bank cut its main lending rate by 25 basis points to 6.5%, as expected, citing weak economic growth and inflation which has stayed around the midpoint of its target range.

The last time the South African Reserve Bank (Sarb) cut its repo rate was in March 2018.

The Sarb is one of many central banks under pressure to ease monetary policy as fears over domestic and global growth have intensified.

Read: Sarb cuts key interest rate, damps expectations for more

“The MPC welcomes the continued downward trend in recent inflation outcomes and the moderation in inflation expectations of about one percentage point since 2016,” Sarb Governor Lesetja Kganyago told a news conference.

Kganyago said the overall risks to the inflation outlook were assessed to be largely balanced and that economic growth was expected to rebound in the second quarter after a sharp 3.2% contraction in the first quarter.

The rand strengthened to R13.94 at 15:22, following the announcement. 

Rand movements

Lukman Otunuga, research analyst at FXTM, says buying sentiment towards the rand jumped in the afternoon with the local currency gaining 0.5% against the dollar. “The USD/ZAR could challenge 13.84 if 13.90 proves to be an unreliable support.”

He says that market optimism from lower interest rates stimulating consumption, which remains a key engine of growth, is likely to boost appetite for the rand.

Thursday’s rate decision was unanimous.

Twenty-four of 30 economists polled by Reuters expected the rate to be lowered to 6.50%. Two expected a cut of 50 basis points and the other four said rates would be left unchanged.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) welcomed the decision in a statement and said it has the potential to stimulate local consumer demand and revive the stuttering economy. 

Businesses that continue to operate in a tough economic environment characterised by low domestic growth and  subdued demand have received some relief, said Seifsa’s chief economist Michael Ade.

David Morobe, GM for Impact Investment at Business Partners, explains that a cut in interest rates will likely have a positive effect on consumers’ spending behaviours.

“Consumers will likely have a bit more disposable income to spend on services and products, which businesses should capitalise on.”

Earlier this year a faction in the African National Congress (ANC) pushed for the Sarb’s mandate to be broadened to explicitly include boosting economic growth and job creation, as well as price stability.

Another faction aligned with President Cyril Ramaphosa said no such plans were being considered, but it was enough to rattle markets.

Kganyago, recently re-appointed to a second five year-term, is a staunch defender of the bank’s independence. 

Peter Kent, the co-head of fixed income at Investec Asset Management, says the interest rate cut is in line with its long-held view that the South African economy is experiencing sustained disinflation, which is mostly driven by the lack of demand in the economy.

Kent adds that the Sarb has to now maintain a careful balance in the months ahead.

Samuel Seeff, chairman of the Seeff Property Group, says the bank should have been bolder and opted for a 50bps cut. “At a time when the economy and property market are really struggling, we needed courage.

“A bolder rate cut is already factored into the currency and the Reserve Bank should have done more to inject impetus to support President Ramaphosa’s reforms to get the economy and confidence back on an upward trajectory.”



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It is unique that if you save some of your income every month in order not to be a burden to the state after your retirement you get hammered with higher inflation and lowering interest rates.
If you live as if tomorrow does not sexist you get rewarded with lowering interest rates because of your suffering to repay your ever increasing loans.

Interest rates are not the only determinant of investment returns. Lower interest rates can provide a boost to equities but if you are sitting in cash only, you won’t benefit.

Methinks Seeff the is getting weary (and a tad desperate) of staring at his watch the whole day waiting for his next sale in the dead property market…

Ya lower those rates, print that money boys, Mr Seeff needs to eat lol. My portfolios crypto allocation needs to hit record highs just like my offshore stocks.

The rate reduction will have a minimal effect on economic growth, our economy is in a systemic decline (BEE , ANC etc) and a lower interest rate will not lead to more investment.
We have a largely consumption driven economy and the interest rate might free up some money to improve the spending, but manufacturing will not benefit.
As a counter effect those who spend, based on their investments will spend less.
Probably a nett zero sum.
Economic growth will/can only come if the obstacles to investment and producing “stuff” are seriously addressed i.e. BEE, ANC, communist style economic thinking etc.

End of comments.





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