Good news for consumers: more interest rate cuts expected

Indebted consumers may be breathing a sigh of relief after the Reserve Bank's monetary policy committee cut the bank lending rate. The prime interest rate is now 10.25% rather than 10.5%.

This means people with a home loan‚ car repayment and credit card debt could save a few hundred rand a month on debt repayment.

But the monetary policy committee's decision to make a rate cut‚ while giving consumers some help‚ is actually a symptom of a weakening economy.

Professor of North West Business School Raymond Parsons said that the decision shows serious concern about South Africa's growth prospects. He said: "This is confirmed by the Monetary Policy Committee's decision to halve its 2017 growth forecast to 0.5%‚ [from 1%] which is more in line with several private sector economists' expectations‚ as well as that of the NWU's latest policy uncertainty index."

He said the weakening economy needed a real fix‚ as changing interest rates didn’t improve the economy. "Monetary policy can offer no fundamental solutions. SA must indeed look to other relevant policies to move the economy forward." The Reserve Bank Governor‚ Lesetja Kganyago‚ when announcing his decision‚ explained: “The MPC is concerned about the deterioration of the growth outlook.” Four of the six MPC members favoured an interest rate reduction‚ he said.

A number of economists encouraged consumers that there will be further rate cuts in the next year.

The central bank is “sensitive to GDP growth‚” Colen Garrow‚ an economist at Meganomics in Johannesburg‚ told Bloomberg. “My feeling is that this is the start of the official rate in South Africa falling to a low last seen in 1973.”

Also speaking to Bloomberg was Rian le Roux‚ chief economist at Old Mutual Investment Group in Cape Town: “They can probably cut another two to three times through the second half of next year‚ assuming the rand doesn’t blow out. If the rand is strong and inflation falls further‚ don’t rule out another cut before the end of the year.”

Nedbank Economic Group said in an email it expected one more cut this year and two more next year.

"We now think that the MPC will cut the repo rate by 25 basis points in September‚ January and March and then leave rates flat into 2018."

Economist Iraj Abedian reminded consumers that they will earn less interest on bank deposits.

Abedian tweeted: "One 25 basis points interest rate cut‚ a relief for consumers but not good for those who rely on their savings."

The interest rate cut could negatively affect pensioners who use savings to survive and will earn less interest on their bank accounts.

- TimesLIVE