Call For 150 Basis Point Cut

The information in this article is courtesy of Fin24 (4200 SA firms to shut in ’09 – 25 May 2009).

According to Statistics South Africa, a total of 349 liquidations were recorded for April 2009 – an increase of 41,3% year-on-year. These liquidations mostly occurred in the financing, insurance, real estate and business services. Fin24 reported that 308 of these liquidations were voluntary, while 41 were compulsory.

Meanwhile a leading economist suggested that a cut of 150 basis points in the repo rate is needed to halt the slide in the real economy, as around 4200 corporate closures could be seen this year.

According to Luke Doig, senior economist at Credit Guarantee Insurance Corporation, the local real economy has been hit hard by a decrease in demand and the effect of lower interest rates are yet to kick in.

Doig recons a 150 basis point cut by the Monetary Policy Committee later in the week could be the answer that they have been looking for to halt the slide. He added that they have seen some positive signs of a let-up in the severity and occurrence of potential payment default, which might indicate that the bottom has been reached.

South Africans can expect the rate cut announcement by the Monetary Policy Committee shortly after 3pm on Thursday, 28 May 2009.