The cut in the repo rate made by the South African Reserve Bank (SARB) on Thursday was ”the right thing to do”, Standard Chartered Bank said.
”Given the slowdown in growth, in South Africa and globally, the receding risks to higher inflation at least in the near term, and the inappropriateness of the previous monetary policy stance, this was absolutely the right thing to have done,” said Razia Khan, regional head of Research Africa.
The key focus was now going to be the pace of the SARB easing cycle that was now underway, she added.
The bank’s inflation forecasts, seeing CPI average 6,2% in 2009, were ”more optimistic than anything we have seen previously”, Khan said.
With inflation dropping to just above the targeted level in 2009, and back within the target in 2010, as far as the SARB was concerned, this was likely to provide a green light for an accelerated pace of monetary easing, Khan added.
”The economy needs it, the bond market will be cheered by it, and the rand is expected to benefit as a result.”
Property sector disappointed
It was regrettable that a full 100 basis point drop or more was not implemented, the Pam Golding Property Group said in reaction to the central bank’s decision.
”This means that any meaningful reversal or impact will take much longer, as there is a considerable lag before such a reduction takes effect,” said CE Andrew Golding.
”We really had hoped for a more substantial reduction in the repo rate, which would send a more decisive positive signal to the markets and to consumers.”
He said a greater rate cut would send a confidence-building message to South Africans, individuals and businesses, that better times lay ahead, particularly given the fact that the fuel price had dropped, the inflation outlook had improved and that the economy had slowed considerably.
Samuel Seeff, chairperson of Seef properties agreed.
”While Thursday’s announcement will be the start to providing some relief to hard-pressed sellers struggling to maintain their bond repayments, in truth, only a significant interest rate drop of between 3% to 4% over next year, will have a positive impact on the market,” Seeff said.
The real estate sector would remain depressed until such time as the banks were able and willing to lend money more freely, he said.
”The market won’t move until we see more favourable assistance from the banks.
”Even with today’s [Thursday’s] rate drop, the loan-to-value criteria being determined by the banks is putting the breaks on the housing market’s recovery,” Seeff said. — Sapa