Rate cut a boost for business

ECONOMISTS believe that the surprise interest rate cut by Reserve Bank governor Gill Marcus would give the economy a significant boost following months of uninspiring performance.

Marcus unexpectedly slashed the Reserve Bank’s repo rate by 50 basis points to 6.5% yesterday in a bid to accelerate a recovery from last year’s recession. Lower consumer inflation helped her to make the decision. The reduction will bring down prime lending rate to 10% from 10.5%.

Economists say the rate cut would boost business and consumer confidence.

“The cut will provide further stimulus to the recovery, not least via improved business and consumer confidence.

“The MPC’s cut was not aimed at influencing the rand, but rather at alleviating the cost of doing business and living costs, given the improved inflation outlook,” said Investec economist Kgotso Radira.

There is also a 50/50 expectation that rates may be trimmed further this year, giving a further relief to cash-strapped South African consumers.

“However, this outlook would depend on the performance of the economy after benefits from the Soccer World Cup have unwound. Any setback in consumption data could prompt the Reserve Bank Monetary Policy Committee (MPC) to respond pre-emptively to softness in the economy,” said Brait economist Colen Garrow.

The hint that rates would be slashed came out earlier in the week when by Stats SA announced the inflation data. Stats SA said on Wednesday that consumer price inflation measured 5.7% year-on-year in February, below Reserve Bank’s upper target range of 6%. The MPC sets the interest rates.

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