South Africa’s major banks were quick off the starting block to cut interest rates on Thursday afternoon after the South African Reserve Bank’s Monetary Policy Committee (MPC) announced that it was reducing the repo rate by 150 basis points from 13,5% to 12%.
The country’s “big four banks” — Nedcor (which includes Old Mutual Bank, Nedbank and People’s Bank), Standard Bank, First National Bank and Absa — wasted no time in announcing that they would be cutting their prime overdraft and home loan lending rates by 150 basis points from 17% to 15,5% from Friday.
“The one-and-a-half percent rate is a pleasant surprise and very welcome for consumers, the banks and business,” said FNB CEO Wendy Lucas- Bull. “The size of the cut is more than expected and will provide both relief to consumers and a stimulus to the economy. A person with a homeloan of R100 000 will now save R150 a month and with the prospects of more rates cuts to come, will continue to gain benefits.
“Hopefully it will be the first of a number of rate cuts during the rest of the year and possibly even into 2004.”
Commenting on the latest rate cut, FNB’s chief economist, Dr Cees Bruggemans, said, however, that real interest rates — the difference between prime and inflation — remain high.
“CPI forecasts for the next six months indicate that inflation may fall to 4% — presently it is 8,5%. This creates great scope for further rate cuts. We could end 2003 with prime at 13%-14% and be looking forward to further cuts in early 2004.
“Credit demand is softening and GDP figures for 2003 have been disappointing, so these factors present the Reserve Bank with good reasons to reverse the rate hikes of 2002.” – I-Net Bridge