Thursday, 9 September 2010

SARB cuts interest rates to prime 9.5%

The South African Reserve Bank's monetary policy committee cut the key repo rate by half a percentage point on Thursday.

The new repo rate is 6%, with the prime lending rate to change 9,5%

The repo rate is the rate at which the central bank lends to other banks, while the prime lending rate is the benchmark rate at which banks lend to customers. The decision to cut rates had been expected

Most economists have argued for a rate cut to boost the economy in the wake of a favourable inflation outlook, as well as slower gross domestic product growth figures and factory data.

The July rate of change in the consumer price index (CPI) came in at 3.7% from 4.2% in June. On Wednesday, Statistics SA reported annual manufacturing production growth of 7.5%, well down on June's growth rate of 9.3%.

Bank governor Gill Marcus said the MPC views the decision to be consistent with the continued attainment of the inflation target, having given due regard to the risks in the outlook."The scope for further downward movement is seen to be limited, but this will be assessed on an ongoing basis. Our approach remains forward-looking and is informed by close examination of the data and future developments," she said.

Reacting to the MPC's decision, chairperson of the National Consumer Forum said: "I think this is something consumers are going to welcome as they've also recently had a drop in the price of petrol. They should use this opportunity to pay off their debts."

Efficient Financial Holdings economist Freddie Mitchell said: "The cut was not surprising at all given the data out of the second quarter. Like the Governor said, the scope for interest rate cuts is getting narrower, I don't thing we'll see another cut this year."


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