Interest rate cut widely welcomed

Relief for consumer

ECONOMISTS welcomed the decreased interest rates, saying the cut would have a positive impact on many sectors of the economy, including agriculture, investment, and franchising.

This came after the SA Reserve Bank (Sarb) announced on Thursday that the Monetary Policy Committee had decided to cut the repurchase rate 25 basis points, to 6.75 per annum due to the improved inflation outlook and the deteriorated growth outlook.

The prime lending rate, the figure charged by banks to customers, will fall to 10.25%.

FNB senior agricultural economist Paul Makube said the cut came as a welcome breather and would ease pressure on farmers and agribusinesses, helping to improve profitability.

“The reduced costs of doing business will eventually benefit the consumer in terms of lower food prices,” Makube said.

Chantal Marx, head of research at FNB Securities, said now might be a good time to consider increasing expos- ure to interest rate sensitive stocks locally.

“Usually when the reserve bank cuts rates, consumers receive relief in terms of debt repayments and may have a little more to spend on discretionary goods, which will be boosted by lower inflation as well. Interest rate sensitive stock includes clothing, furniture, and car retail and travel and leisure stocks,” Marx said.

Riaan Fouche, head of FNB franchising international development, said the rate cut would help ease debt service costs for franchisees and generate more cash flow.

“This enables expansion strategies of franchisors which will have a positive impact in creating employment. It will also allow franchisees the opportunity to settle existing debt a little quicker,” Fouche said.

But Sarb governor Lesetja Kganyago warned a number of risks to the inflation outlook persisted and the rand remained vulnerable to political uncertainty, global monetary policy and possibly further ratings downgrades. – ANA