Gill, you beaut!
An interest rate cut yesterday finally gave consumers and small business owners some breathing space in an increasingly tough economic climate.
The Reserve Bank's monetary policy committee lowered the repo rate by 50 basis points to 5%, its lowest in 30 years - a move that surprised most economists. It brings the cuts to a total of 700 basis points since December 2008.
The cut follows weeks of unsettling economic data. Most commentators agree that the economy slowed considerably in the second quarter, and policy-makers and consumers alike fear that the eurozone crisis could hit South Africa hard in the coming months.
"It is a very, very difficult environment globally," said Reserve Bank governor Gill Marcus yesterday. "We want to contain the spillover [of the eurozone crisis] to South Africa."
She said that the domestic economy seemed to be slowing further and the Bank had revised its economic growth forecast for this year to 2.7% from 2.9%.
Consumer spending has been an important driver of economic growth over the past few years but the latest retail sales figures and consumer confidence surveys show that spending is under pressure and that those doing the spending are increasingly pessimistic.
The FNB/BER consumer confidence index this week was at its lowest since the financial crisis and the start of South Africa's previous recession.
Marcus said the idea was not to get consumers to spend South Africa out of economic trouble.
"We see consumers taking a conservative approach. The interest rate was lowered to help them service their debt."
She pointed out that the ratio of household debt to disposable income has declined further to about 75% from 82%.
"Consumers are being pretty sensible about their debt and balance sheet repair," she said.
The rate cut will have a direct effect on homeowners. Bond repayments on a R1-million house paid off over 20 years will be reduced from R8891 to R8585 a month.
John Loos, household sector and property strategist at FNB Home Loans, was surprised by the cut.
"In the world of the household/consumer, one 'excess' that has developed is arguably too much indebtedness and I believe that interest rates should be at a level that encourages the household debt-to-disposable income ratio to continue to decline."
Loos believed that further rate cuts would be premature.
Marcus said the monetary policy committee's decision was unanimous.
"We did not entertain a 100 basis-point [cut]," she said, adding that the bank had always chosen a "steady" approach.
The SA Chamber of Commerce and Industry welcomed the bank's move, saying: "This decision will go a long way towards alleviating cost pressures on households and businesses (and SMEs in particular)."
It was, however, not convinced that it would strengthen growth .
The trade unions have been calling for an interest rate cut to help prevent job losses in manufacturing.
"If a significant amount of our manufactured goods go to Europe we have to be concerned about growth there," said Marcus yesterday.
Marcus confirmed that the Reserve Bank remained committed to keeping inflation under control.
"Our core mandate is [preserving] price stability but we have to look at the overall environment," she said, adding that the lower interest rate would not, on its own, overcome the challenges facing the economy.