Mboweni's message for you
6 February 2009, 07:46
By Suren Naidoo, Mercury correspondent and Sapa
Reserve Bank governor Tito Mboweni on Thursday urged people to make wise use of the benefits of the biggest interest rate drop since 2003, especially at a time when South Africa and the rest of the world face an uncertain financial future.
He dropped the interest rate by 100 basis points, or by a percentage point. For people borrowing from banks, prime will now be at 14 percent. This could mean a saving of R733 a month on a R1 million bond, and R62 for a R120 000 car loan.
Mboweni said he had wanted a repo rate cut of 200 basis points.
"I went in there guns blazing for a 200 basis point drop but they - the Monetary Policy Committee - would not be persuaded," he said, an indication that he saw space for further rate cuts.
Mboweni said domestic inflation had continued on its downward trend since the previous meeting of the committee.
"A further decline is expected in the January data when the reweighting and rebasing of the CPI index implemented by Statistics South Africa comes into effect," he said.
The committee had to weigh up inflation and the international economic downturn when deciding on the interest rate.
"Some risks to the inflation outlook remain and the MPC had to assess these conflicting risks against the backdrop of a highly uncertain and volatile international environment," he said.
The move was widely welcomed - although trade union federation Cosatu said the reduction was too small.
It demanded an interest rate strategy based on targeting not only inflation but also economic growth, job creation and poverty eradication.
Cosatu accused the MPC of being tied to "the false policy of rigid inflation-targeting", despite the fact that the rate of inflation was now falling.
"More than ever, the biggest danger is not inflation but economic recession and rising unemployment," it said.
Integer Home Loans' Simon Stockley said the decrease was not enough to stimulate the property sector.
"Ordinary consumers are buckling under the pressure of the hawkish stance adopted by the committee," he said.
"We would have hoped that the MPC would have taken the far more interventionist stance adopted by the United States, Australia and the United Kingdom."
Trade union Solidarity called the decrease a "life-saver", saying it would put money back into the pockets of consumers.
"In addition, credit will be available more cheaply to companies, which could eventually be used to finance essential expansions, increase production and ultimately encourage growth," said Solidarity spokesman Jaco Kleynhans.
The Federation of Unions of South Africa said a two percent cut would have been preferable.
"The second level of this crisis is the suffering of small businesses and the subsequent effect on our country's already high rates of unemployment and poverty, causing many other socio-economic ills like crime and corruption to escalate," Fedusa said.
Keith Wakefield, of Wakefields Estate Agents, said: "It is extremely gratifying to see that the Reserve Bank governor has taken the step to cut the repo rate by a full one percent.
"This is going to be good for the economy and the property market and will bring relief to household budgets."
Reserve Bank governor Tito Mboweni on Thursday urged people to make wise use of the benefits of the biggest interest rate drop since 2003, especially at a time when South Africa and the rest of the world face an uncertain financial future.
He dropped the interest rate by 100 basis points, or by a percentage point. For people borrowing from banks, prime will now be at 14 percent. This could mean a saving of R733 a month on a R1 million bond, and R62 for a R120 000 car loan.
Mboweni said he had wanted a repo rate cut of 200 basis points.
"I went in there guns blazing for a 200 basis point drop but they - the Monetary Policy Committee - would not be persuaded," he said, an indication that he saw space for further rate cuts.
Mboweni said domestic inflation had continued on its downward trend since the previous meeting of the committee.
"A further decline is expected in the January data when the reweighting and rebasing of the CPI index implemented by Statistics South Africa comes into effect," he said.
The committee had to weigh up inflation and the international economic downturn when deciding on the interest rate.
"Some risks to the inflation outlook remain and the MPC had to assess these conflicting risks against the backdrop of a highly uncertain and volatile international environment," he said.
The move was widely welcomed - although trade union federation Cosatu said the reduction was too small.
It demanded an interest rate strategy based on targeting not only inflation but also economic growth, job creation and poverty eradication.
Cosatu accused the MPC of being tied to "the false policy of rigid inflation-targeting", despite the fact that the rate of inflation was now falling.
"More than ever, the biggest danger is not inflation but economic recession and rising unemployment," it said.
Integer Home Loans' Simon Stockley said the decrease was not enough to stimulate the property sector.
"Ordinary consumers are buckling under the pressure of the hawkish stance adopted by the committee," he said.
"We would have hoped that the MPC would have taken the far more interventionist stance adopted by the United States, Australia and the United Kingdom."
Trade union Solidarity called the decrease a "life-saver", saying it would put money back into the pockets of consumers.
"In addition, credit will be available more cheaply to companies, which could eventually be used to finance essential expansions, increase production and ultimately encourage growth," said Solidarity spokesman Jaco Kleynhans.
The Federation of Unions of South Africa said a two percent cut would have been preferable.
"The second level of this crisis is the suffering of small businesses and the subsequent effect on our country's already high rates of unemployment and poverty, causing many other socio-economic ills like crime and corruption to escalate," Fedusa said.
Keith Wakefield, of Wakefields Estate Agents, said: "It is extremely gratifying to see that the Reserve Bank governor has taken the step to cut the repo rate by a full one percent.
"This is going to be good for the economy and the property market and will bring relief to household budgets."
- This article was originally published on page 1 of The Mercury on February 06, 2009
Cape Town
