The South African Reserve Bank’s move to cut its benchmark interest rate for the first time since July has been welcomed, but economists believe more needs to be done as inflation is forecast to remain within the target and the economy is barely growing.
“In view of existing pressures on the economy the psychological impact of a modest interest rate cut will currently be greater than its real economic effect. But it is nonetheless positive.” “South Africa’s interest rate is higher relative to the rest of the world and out of step with the economy which is struggling while consumer and investor confidence is at record-low levels. We have been in a holding pattern for about eighteen months and it is time for decisive action from the Reserve Bank to take responsibility and provide support for the economy.”
The property market has continued ticking over, carried largely by the low to mid-market residential sector, but it remains lacklustre. Kganyago added that electricity supply constraints would keep economic activity muted, while business confidence remained weak. Parsons said that cuts in interest rates may be needed later, especially as the MPC’s growth forecasts may in any case be on the optimistic side.
Source: Financial Digest (financialdigest.net)
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