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Interest rate relief

By unknown | Mar 25, 2009 | COMMENTS [ 0 ]

Zweli Mokgata

Zweli Mokgata

South Africans were given more breathing room yesterday with the 100 basis point cut in interest rates.

But, people with fixed investments will feel the pinch because, while homeowners count on lower interest rates to lower their mortgage loan repayments, investors welcome interest rate hikes so they can earn more interest.

Yesterday's rate cut puts the repo rate at 9,5percent.

The prime rate, which banks charge on mortgages and other loans, drops to 13percent.

This was the first meeting of the revised schedule that would see the Reserve Bank's Monetary Policy Committee (MPC) meeting more frequently throughout the year. Seven additional MPC dates have been set.

While analysts have predicted that this would mean more rate cuts, governor Tito Mboweni cautioned that this would not be the case. "I must emphasise that people shouldn't entangle themselves in the confusion that the frequency of MPC meetings will mean more reductions. If anyone takes this position, they will be fools.

"The pace of change in global economic and financial conditions has required us to meet more frequently, but analysts should not give their clients and the South African population wrong advice," he said.

Mboweni also said he expected to see another quarter of negative economic growth, which would put South Africa in recession.

The cut in interest rates was generally well received, but financial institutions would feel the pinch according to Craig Massey, director of Sanlam Private Investments.

"People with fixed deposits counting on interest rates staying high will also feel the pinch, but on the whole it's a positive movement for the economy," said Massey.


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