‘SARB MPC decision will help to underpin confidence’

The MPC’s decision today to reduce the repo rate by 25 basis points is a welcome recognition of the need to reduce borrowing costs for business and consumers in SA. This is according to NWU Business School economist, Professor Raymond Parsons.

He explained that although it is a small step in the bigger scheme of things in the SA economy, it can help to underpin business and consumer confidence at the present juncture.

“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.

“With inflation presently well within the target range of 3%-6% and with the MPC having again cut its growth forecasts for both 2020 and 2021, there is clearly now both the space and the need for the MPC to act flexibly at this critical stage in SA’s business cycle,” Professor Parsons added.

He stated that further cuts in interest rates may be needed later, especially as the MPC’s growth forecasts may in any case be on the optimistic side.

“The World Bank and other economists are already expecting a growth rate of below 1% in 2020, compared with the MPC’s latest growth forecast of 1.2%.

“The MPC’s decision on interest rates nonetheless does not gainsay the fact that ultimately the main burden of turning the economy around and securing job-rich growth does not lie with monetary policy, but rather with the urgent expediting and implementing of the progrowth reform policies to which SA is committed. The State-of-the-Nation Address and the Budget next month hold the policy keys to a pivotal year for the SA economy. “