Reserve Bank is set to drop interest rates

Sibongile Mashaba

Sibongile Mashaba

All eyes are on the Reserve Bank's Monetary Policy Committee meeting that starts today and ends tomorrow to discuss new interest rates.

The 10-member committee is widely expected to cut the repo rate by 100 basis points to 9,5percent, thereby reducing the prime rate to 13percent from 14percent.

The Reserve Bank decided to bring forward by at least three weeks its committee meeting, which was scheduled for April 15 and 16.

Reserve Bank governor Tito Mboweni announced last week that the committee would now meet every month for the rest of year, instead of every two months.

"We thought, maybe, the more frequently we meet in this type of global environment, the better handle we would have on the situation," Mboweni said.

He said at the time that the country had to adjust to a dramatic change in global economic conditions.

Although economists welcome this adjustment, they say it came late.

"Its a good thing that there is some action being taken, although it is very late," said the chief economist of the Industrial Development Corporation, Lumkile Mondi.

"The rates will be reduced by 100 basic points," he predicted.

"It will be a good thing. It means people will have more money in their bank accounts.

"I advise people to put back the extra money to paying off their debts. Debt is not good. Instead of spending their money, people should consider saving."

The bank said in a statement on its website it had changed meeting dates for the rest of the year, with the committee now to meet every month, except for July.

According to a research done by Investec Bank, SA consumer credit growth picked up quite sharply in the latter part of 2004 on the back of low interest and inflation rates, rising real disposable incomes and wealth effects from the housing boom (the sharp increase in house prices has also pushed up the value of mortgage advances).