The prospects of the South African Reserve Bank in cutting interest rates has priced in at a 30 percent chance of a cut of 50 basis points at the next policy meeting in July, this would make money cheaper and boast the economy.
Currently the benchmark rate for the last 18 months have been on hold at 0.7 percent. The shocking news that the South African economy is now officially in recession after data showed that the economy contracted 0.7 percent in the first four months of 1017. According to economists this may prompt the South African Reserve Bank to cut interest rates sooner than they had planned in a bid to rescue the economy.
Johann Els, senior economist at Old Mutual thinks that by cutting rates now, it would boost confidence together with a forward growth outlook which would aid fiscal sustainability.. Rating Agencies would see this as a positive. Cutting rates next year would drive the economy into a permanent recession, it would be too late.
George Glynos, director at ETM Analytics feels that the prospect of a rate cut has increased, for a whole lot of reasons. Previously inflation was the front and centre, now the Reserve Bank will be prioritizing on growth.
Comments From Opposition Party, the DA
According to a statement by the opposition Democratic Alliance party, the decision by Moody’s to downgrade the South African economy earlier this year to junk status, highlights the negative effect that the political developments have had and a vote of no confidence in President Jacob Zuma and his newly appointed Finance minister Malusi Gigaba.
Political Analyst Insights
In an interview with Craig Millar, a political analyst at Citidex in South Africa, thinks while it would be great if the rate was cut by 50 points – resulting in a bit of breathing room for South Africans, he doesn’t think that the current regime are too concerned with that. “Who knows though? Perhaps the ANC will take a breather from the wholesale looting to give citizens a brief breather. Lets not hold our breath though.”
Millar added that the only thing that will save the economy in the short term is Jacob Zuma and the ANC being booted from power and that any gains to be made from a rate cut are likely to be eaten away by inflation resulting from inter alia fuel price increases in any event.
“When your reserve bank governor starts citing political uncertainty you really know that economic opinions are becoming more and more of a lottery every day sadly. This of course does little to improve the flow of forex into the country. Like many other emerging market currencies, the Rand is however benefiting from Donald Trumps moronic statements which hurt the dollar!
Further political uncertainty within the official opposition does nothing for investor confidence either and it is certainly hoped that common sense prevails and that people who fought so hard to get the DA into the strong position it was in a short while ago, don’t sacrifice the work of so many others for the sake of personal egos and agendas.”
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