Coronavirus: ‘1% interest rate cut no magic wand for debt’
Cape Town - Consumers will now have more disposable income after SA Reserve Bank (Sarb) governor Lesetja Kganyago announced a repo rate cut of 100 basis points (1%), bringing some relief to the cash-strapped.
But global head of currency strategy and market research at ForexTime, Jameel Ahmad, warned: “No one should expect this interest rate cut to be a magic wand to fix things, especially when it comes to market volatility and the Covid-19 pandemic, as this is unprecedented territory that has not been seen in a lifetime.
“What this interest rate can do is help support the economy until the dust has settled with the virus, but this is like putting the emergency breaks on a car and not knowing when it can drive again. Further fiscal, business, citizen and monetary support is still required,” Ahmad pointed out.
The cut came as Statistics SA (Stats SA) released figures showing the value of civil judgments for debt increased by 3% in the three months ended January, compared to January 2019.
Debt Rescue chief executive Neil Roets said: “It is evident that 2020 is going to be an even more difficult year than what was expected, after 2019’s severe impact on consumers and their ability to repay their debt. This can be seen in Stats SA’s figures.
“Businesses were already struggling to keep their doors open, and with the impact of Covid-19 starting to show, it will only place an even bigger burden on them,” Roets warned.
On calls for a debt holiday or payment break, especially for small businesses, he said: “Given these extraordinary circumstances, I think debt holidays would be very helpful. There are a lot of small businesses who will not survive with the lack of income and then still having to pay all their expenses, including debt repayments.
"A debt holiday would also mean that the credit providers would be able to recover the debt, albeit over a longer period of time.”
But Old Mutual's financial education head John Manyike said: “In a perfect world, it would be great for banks and other lenders to give a payment break, but in reality there are complications. After all, this is shareholders’ money we are talking about.
“The shareholders want their profits and are panicking as global markets fall and show signs of crashing. For credit providers to give a three-month credit break, there would have to be a catch and people need to be educated on the full implications of just what such a break would mean,” he said.