News

Mboweni's cut widely welcomed

February 06, 2009 Edition 1

Daily News Correspondent and Sapa

It IS THE biggest decrease since 2003 - but the message from Reserve Bank governor Tito Mboweni is: use the savings wisely at a time when South Africa and the rest of the world face an uncertain financial future.

Yesterday Mboweni dropped the interest rate by 100 basis points, or one percentage point, to 10.5%, which comes into effect today.

For consumers taking out loans from a bank, prime will now be at 14%, as banks follow the announcement.

Mboweni said he had in fact wanted a repo rate cut of 200 basis points.

"I went in there guns blazing for a 200-basis-point cut, but the MPC (monetary policy committee) would not be persuaded," Mboweni told a press conference in Pretoria - an indication that he saw space for further rate cuts in the near future.

"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 added.

For consumers this could mean a monthly saving of R733 on a R1-million bond and R62 for a R120 000 car loan.

Standard Bank economist Danelee van Dyk said Mboweni's message was clear: consumers need to be cautious because conditions can quickly deteriorate. She advised people to use the extra money wisely by planning finances carefully and to pay off debts.

The cut 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, quality job creation and poverty eradication.

Simon Stockley of Integer Home Loans said the rate decrease was not enough to stimulate the property sector.

Trade union, Solidarity, called the decrease a "life-saver", saying it would put money back into the pockets of consumers. - Daily News Correspondent and Sapa