Repo cut not deep enough

2010-09-11 11:07

While the Reserve Bank’s half a percentage point cut in the repo rate to 6% from 6.5% is a ­welcome relief for heavily indebted consumers it has come a little too late.

When it became clear that the eight interest rate cuts the Bank had implemented since mid-2008 were not delivering the recovery it was hoped they would, the rate cutting should have been deeper than what we are currently seeing.

The slow response by the South African ­economy to the barrage of rate cuts can be traced back to the mishandling of the global credit crisis by Tito Mboweni, the previous Reserve Bank ­governor.

In 2008, he misread the crisis by eight to nine months when it was clear that the economy was tanking and a jobs bloodbath was setting in.

Had Mboweni started slashing interest rates earlier than December 2008, the economy would be in better shape than it is today.

His successor, Gill Marcus, is treating a patient that has been allowed to suffer for a long time from a disease that is difficult to cure.

The rate cuts are being administered but the economy is taking longer to respond.

Even after the latest rate cut economists are not overconfident that the economy will take a giant leap towards recovery.

The country’s main business chamber, Business Unity SA, does not expect the economy to grow by more than 3% in the second half of this year.

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