Was This the Final Rate Cut?

The information in this article is courtesy of Business Report (Mboweni signals the last rate cut – 28 May 2009)

The South African Reserve Bank’s monetary committee again gave consumer reason to smile when they cut the repo rate by another 100 basis point, leaving the interest rate at 7.5%. This is on top of the 4.5% that was shaved of the interest rate over the past four months.

Reserve Bank Governor, Tito Mboweni, announced the cut yesterday and added that the monetary policy committee would not consider any further significant rate cuts. He also warned that the MPC has done as much as it can.

Mboweni feels that cartel and monopoly pricing practices in the food and steel industries, and Eskom's controversial request for a 34 percent interim increase in electricity tariffs are not helping their efforts to bring down inflation that recorded 8,4% last months.

Mboweni responded to a question by saying that the fact that the real repo rate was negative was one factor in this decision and the other was that the effect of the previous rate cut was yet to be seen. According to Mboweni, the challenge was to balance concerns about consumer inflation against fears about the depth of the recession.

The deciding factor, however, was concerns over the 208 000 job losses in the first quarter and a sharp contraction in gross domestic product (GDP).

Mboweni was initially reluctant to start the rate cut cycle mainly due to the fact that rate cuts weaken a currency. Fortunately the Rand has been stable, even strengthening against major currencies at times.