Consumers have a little more money for Easter eggs

The South African Reserve Bank has given borrowers a little Easter holiday gift, announcing a 25 basis point cut in interest rates on Wednesday.

The central bank cut the repo rate to 6.5%, its governor, Lesetja Kganyago, said, following “heated” debate among the bank’s monetary policy committee (MPC) members. Four members favoured a reduction but three wanted it to remain unchanged.

The cut was despite concerns about effect the 1% value-added tax (VAT) increase announced in the February budget could have on prices. But the bank decided the positive moves in the rand’s exchange rate, which has strengthened recently on the back of increasingly positive market sentiment and an improved credit outlook by ratings agency Moody’s, will help to counteract the effect of the VAT hike.

“While the increase in the value-added tax rate to 15% places temporary upside pressure on inflation, this is mitigated by the stronger exchange rate, which has contributed to the changing inflation risk profile,” Kganyago said in his statement on the rates decision.

But, he warned, because of the uncertain economic environment, future policy would “be highly data- dependent and sensitive to the assessment of the balance of risks to the outlook decisions.”

Kganyago added: “We have not started a journey of cutting. Every MPC meeting is different.”

The chief executive of FNB, Jacques Celliers, said the cut would uplift consumers and keep interest rates at attractive levels for investors in developed countries.

Lower consumer price inflation, which declined to 4% in February, was key to this decision, said Celliers, as was the favourable decision by Moody’s to change its outlook on South Africa from “negative” to “stable”.

Luigi Marinus, the portfolio manager of PPS Investments, said the rate cut offered a “welcome relief for South African consumers ahead of the looming 1% VAT increase”.

But the decision countered the most recent move by the United States Federal Reserve to raise rates by 25 basis points. It has signalled that more rate hikes could be in the offing.

Kganyago said that, although some of the key domestic uncertainties that had overshadowed the inflation outlook in previous MPC meetings had abated, risks remained, including the effect of global monetary policy normalisation on the rand.

“The exchange rate is currently assessed to be less of a risk to the inflation outlook,” he said. “However, the rand will remain sensitive to a faster pace of normalisation in the advanced economies, possible heightened global financial market volatility, as well as domestic developments.”

Local developments included the effect the public sector wage agreement would have on other wage increase expectations.

“Public sector wage settlements actually do have an impact on the settlements that other sectors agree to,” he said.

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever. But it comes at a cost. Advertisers are cancelling campaigns, and our live events have come to an abrupt halt. Our income has been slashed.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years. We’ve survived thanks to the support of our readers, we will need you to help us get through this.

To help us ensure another 35 future years of fiercely independent journalism, please subscribe.

Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

Coalition politics and law: The fight over Tshwane

With coalition politics on the rise, particularly in local government, this kind of court case is likely to become more common

High court declares Dudu Myeni delinquent

Disgraced former SAA chairperson Dudu Myeni has been declared a delinquent director by the...

SANDF inquiry clears soldiers of the death of Collins Khosa

The board of inquiry also found that it was Khosa and his brother-in-law Thabiso Muvhango who caused the altercation with the defence force members

No back to school for teachers just yet

Last week the basic education minister was adamant that teachers will return to school on May 25, but some provinces say not all Covid-19 measures are in place to prevent its spread

Press Releases

Openview, now powered by two million homes

The future of free-to-air satellite TV is celebrating having two million viewers by giving away two homes worth R2-million

Road to recovery for the tourism sector: The South African perspective

The best-case scenario is that South Africa's tourism sector’s recovery will only begin in earnest towards the end of this year

What Africa can learn from Cuba in combating the Covid-19 pandemic

Africa should abandon the neoliberal path to be able to deal with Covid-19 and other health system challenges likely to emerge in future

Coexisting with Covid-19: Saving lives and the economy in India

A staggered exit from the lockdown accompanied by stepped-up testing to cover every district is necessary for India right now

Covid-19: Eased lockdown and rule of law Webinar

If you are arrested and fined in lockdown, you do get a criminal record if you pay the admission of guilt fine

Covid-19 and Frontline Workers

Who is caring for the healthcare workers? 'Working together is how we are going to get through this. It’s not just a marathon, it’s a relay'.

PPS webinar Part 2: Small business, big risk

The risks that businesses face and how they can be dealt with are something all business owners should be well acquainted with

Call for applications for the position of GCRO executive director

The Gauteng City-Region Observatory is seeking to appoint a high-calibre researcher and manager to be the executive director and to lead it

The best local and international journalism

handpicked and in your inbox every weekday