Reserve Bank Governor Tito Mboweni dropped the repo rate by 50 basis points on Thursday, bringing it to 7%, while prime is 10,5%.
The news came after the United States Federal Reserve declared that the end of the recession could be in sight.
On Wednesday the Fed said that economic activity ”will remain weak for a time” but could stabilise on the back of massive stimulus packages rolled out in the US.
But although a global recovery may be on the way, economists believe the effects will take some time to filter through to South Africa, which tends to lag behind world markets.
Mboweni said in his statement that ”there are encouraging signs that the global slowdown may have reached its lower turning point, although the speed and extent of the recovery are still subject to a high degree of uncertainty”.
Mboweni’s interest rate announcement came after the release of poor retail figures earlier this week, which slumped by 6,7% in June.
”The latest decline is especially disappointing considering the large number of sporting events that occurred in May/June, which would have cushioned the fall-off in retail spending after all the public holidays in April,” said Stanlib economist Kevin Lings in a research note.
Lings underscored the difficulties being experienced by local consumers. Household credit declined in June — a ”very rare event”.
Household debt as a percentage of disposable income has also begun to rise again, climbing to more than 75%, after falling slightly last year.
Speculation about a recovery has been fuelled by the positive performance of the JSE in recent months, with similar recoveries in international markets.
But experts warn that the gains may be artificial and a possible correction could be in the offing.
”The economic slowdown has itself begun to slow down,” said economist Mike Schussler. ”But there will probably be a lag and we are only likely to come out of recession in the fourth quarter of 2009.”
Schussler said some uncertainties still remain, not least the fact that ”the equity market run-up may have got ahead of itself”.
He expected a possible correction of between 10% and 15%.
Economic growth is expected to recover, but not at levels required to address significantly deep-rooted poverty and unemployment in South Africa.
Research by Nedbank indicated that towards the end of the year the optimism about the ”green shoots” of recovery may fade as the initial boost provided by fiscal stimulus packages begins to dissipate.
Government has earmarked more than R700-billion for infrastructure development, R2,4-billion in a training lay-off scheme to preserve jobs and R6-billion to assist ailing businesses through the Industrial Development Corporation.
”Growth will likely remain negative in quarters three and four,” said Schussler. Gross domestic product shrank by more than 6% in the first quarter of the year.
”Things are likely to improve but it will take time before growth rates improve to anywhere near the 4% seen in the past,” he said.
