Investment, agri and franchising sectors to benefit from repo cut

The South African Reserve Bank’s Monetary Policy Committee (MPC) decision to reduce its repo rate by 0.25 basis points will provide welcomed relief for consumers, particularly in the  investments, agri and franchising sectors.

The MPC took the markets by surprise on Thursday when it lowered its benchmark repo rate by 25 basis points (bps) to 6.75 percent, its first interest cut since 2012.

Chantal Marx, Head of Research FNB Securities said the cut and persistence of the governor’s dovish tone highlights that now might be a good time to consider increasing your exposure to interest rate sensitive stocks locally.

Read also: Low inflation forces interest rate cut 

“Usually when the reserve bank cuts rates consumers receive some relief in terms of debt repayments and may have a little more to spend on discretionary goods this will be boosted by lower inflation as well.”

She said interest rate sensitive stock included clothing, furniture, and car retail and travel and leisure stocks.

Paul Makube, FNB Agricultural Economist said: “the decreased interest rate is a welcome breather as it will help ease pressure on farmers and agribusinesses, further improving profitability. The reduced costs of doing business will eventually benefit the consumer in terms of lower food prices. It will further improve the feasibility of delayed or stalled investment projects which have a potential to unlock employment opportunities in the sector."

Riaan Fouché, Head of FNB Franchising International  Development  said the decreased interest rate will assist with lower debt service costs for franchisees and more cash flow.