Fri Oct 21 11:16:23 SAST 2016

SURPRISE RATE CUT by outgoing mboweni

By Jane Steinacker | Aug 14, 2009 | COMMENTS [ 0 ]

RESERVE Bank governor Tito Mboweni surprised South Africans with a 50-basis point cut in interest rates yesterday, spurring speculation that poor GDP growth figures might be around the corner.

The rate cut wrong-footed economists, who had roundly predicted that Mboweni would keep the repo rate, the rate at which the central bank lends to commercial banks, at 7,5percent.

But the cut takes the repo rate to 7percent and the prime rate, at which banks lend to consumers, will come down to 10,5percent.

But Brait economist Collen Garrow believes that the unexpected rate cut is a "hidden message" that the gross domestic product figures due to be released next week will be poor.

While Garrow believes there is scope for more interest rate cuts, "probably about 1percent more", other economists are not convinced.

Mboweni, who will be replaced by Gill Marcus in November, said the decision to slash rates was "very closely debated".

Practically, the rate cut will save homeowners R305 on a R900000 home loan, as their monthly repayment will fall to R8985 from R9290.

This could also help prop up falling house prices. Last week, Absa said house prices in its "middle segment" had fallen 4,2percent from a year ago.

"The [rate cut] is welcome news for consumers as this will further ease pressure on disposable income," said Liberty Life's consumer economist Tendani Mantshamuli.

"This provides an opportunity for indebted customers to lower their level of debt."

But while this may be good news for homeowners, pensioners who rely on income from interest-rate-linked savings will be less cheerful.

But Nedbank chief economist Dennis Dykes said pensioners would still score, because the Reserve Bank believed inflation would drop, which meant that pensioners would still get a real income boost.


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