JOHANNESBURG – Economists have said that the decision by the South African Reserve Bank (SARB) to reduce its repurchase rate (repo rate) by 25 point basis would bring some much-needed relief to consumers.
SARB Governor Lesetja Kganyago announced on Thursday that the monetary policy committee (MPC) unanimously decided to reduce the repo rate by 0.25 percent to 6.5 percent per annum with effect from Friday, down from 6.75 percent.
The repo rate has remained unchanged since March 2018 when the MPC introduced a 25-basis point hike.
Jacques Celliers, the chief executive of FNB, said the bank will reduce its prime lending rate from 10.25 percent to 10 percent with effect from Friday. The lower rate applies to all prime-linked loans.
"Today's rate cut is expected to bring some relief to consumers who have been under pressure during the last few months," Celliers said.
"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."
Celliers said the SARB was correct in its stance that interest rates alone are not a primary driver of the economy, adding that 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.
John Jack, chief executive commercial real estate consultancy Galetti Corporate Real Estate, said the interest rates cuts will boost the country’s flagging economy, but warned that it may not stem the tide against falling property values.
"The rate cut by 25 basis points to 6.5 percent was good stimulus for the commercial property sector but we also need to see real GDP growth to halt the rising vacancy trend," Jack said.
Stanford Mazhindu, spokesperson of the trade union UASA, said they welcomed this decision, saying a 50 basis point would have been the better option but they hope that another reduction of 25 basis points will follow later this year.
"The announcement is good news for workers forced to tighten their belts to the limit as relentless price increases eat away at what is left of their hard-earned disposable income," Mazhindu said.
"Workers have borne the brunt of these increases and are overburdened in an ailing economy. The relief of a lower interest rate is well deserved."
Lukman Otunuga, research analyst at FXTM, said although a reduction in rates has the potential to reduce the attractiveness of South African financial assets, it could support the economy.
"Market optimism over lower interest rates stimulating consumption, which remains a key engine of growth, is likely to boost appetite for the rand," said Otunuga.
"Buying sentiment towards the rand has jumped this afternoon with the local currency gaining 0.5 percent against the dollar."
The rand climbed against every single G10 currency on Thursday afternoon.