South Africa’s economic growth prospects are deteriorating and monetary stimulation is ”not a bad idea”, Reserve Bank Governor Tito Mboweni said on Thursday after announcing a 100 basis point interest rate cut.
”The growth prospects for the South African economy are getting worse and therefore a little monetary stimulation is not a bad idea, particularly because inflation is coming down,” he told South African Broadcasting Corporation television after announcing the rate cut.
Reacting to the decision, Johan Botha, senior economist from Standard Bank, said: ”With this decision the MPC [monetary policy committee] has indicated that the Reserve Bank at the moment prefers active monetary stimulus to support economic growth going forward in an environment of declining inflation.”
Investec economist Kgotso Radira commented: ”Today’s interest rate cut will provide much-needed support to the highly indebted households and the production side of the economy. The rapidly slowing real economy, potential job losses, moderating inflation rate and credit demand are likely to have persuaded the MPC to cut by 100 basis points.
”More interest rate cuts are needed in this cycle to prevent a severe economic slowdown in the coming quarters, and we expect more interest rate cuts throughout 2009 as targeted inflation continues to decline.”
Cees Bruggemans, chief economist at First National Bank, said: ”The governor indicated, possibly only half in jest that he had proposed a 2% rate cut today, but that the Monetary Policy Committee had restrained him, feeling 1% was enough.
”However, as an indication of things to come, this probably can be taken as a broad hint that the April decision will also favour another 1% cut, prime by then moving down to 13%.
”The governor spent considerable time in the Q&A session following the MPC announcement dwelling on the terrible and still deteriorating condition of the world economy, explaining to the watching nation at some length that we are not isolated or decoupled from these global realities.
”I expect the Reserve Bank now to lower interest rates by 450 points, peak to trough, prime moving from 15,5% to 15% in December 2008, to 14% this week, to 13% by April 2009 and to 12% by June 2009.
”Thereafter, depending on global and local circumstances and the inflation forecast flowing from it, and taking due cognizance of any upside inflation risks (rand, oil, food, politicians) there could still follow further 0,5% cuts in two subsequent MPC meetings, prime falling to 11,5% in August 2009 and possible to 11% in October 2009.
”Thereafter one would expect prime to go on hold through much of 2010.” — Reuters, I-Net Bridge