The United Democratic Movement says South African Reserve Bank Governor Tito Mboweni and the monetary policy committee have shown foresight and courage by lowing the repo rate by 50 basis points.
UDM finance spokesperson Martin Stephens, MP, said for more than a year the UDM has been advocating against an excessively strong currently.
“Shortly after the election President [Thabo] Mbeki dodged the issue when we raised it in Parliament,” said Stephens.
“The fact remains that high interest rates expose the economy to uncertainty and are an impediment to growth and development.
“Lower interest rates will reduce the cost of capital and thus support domestic investment. The interest-rate differential between South Africa and other countries, especially our trading partners, is a major cause of currency volatility.
“We have argued that the Reserve Bank should reduce interest rates in order to address this problem and also to protect manufacturing and mining jobs and enterprises that depend upon favourable and stable exchange rates.
“We believe that a suitable balance can be found between the demands of exporters and importers. Our calls for a weaker rand are not an appeal for a weak rand. Our dependence on both imports and exports means that we must have a currency that is neither too weak, nor too strong.”
Continued incremental downward reductions of the repo will allow the economy and markets to adapt, while gradually correcting the negative effects of unnecessarily high interest rates, he said.
The two-day meeting of the South African Reserve Bank’s monetary policy committee — which ended on Thursday — decided to lower the repo rate to 7,5%. This was the first rate cut since December 2003.
The cut caught the market by surprise, as the unanimous expectation of economists after the Reserve Bank last year cut interest rates five times by 550 basis points in total was that rates would remain unchanged this time round. — I-Net Bridge