JOHANNESBURG – The decision by the Reserve Bank to cut the repo rate by 25 basis points has been broadly welcomed but some said that the Monetary Policy Committee could have been more aggressive in decreasing the rate.
Governor Lesetja Kganyago announced on Thursday that the rate had been cut to 6.5%.
Kganyago has predicted growth to be 0.6% this year, a far cry from the predicted 1.8% in January.
He said that the bank was, therefore, cutting the rate to encourage growth, saying inflation had stabilised.
“According to the Bureau for Economic Research second-quarter survey, expectations are for headline inflation of 4.8% in 2019.”
However, the Black Business Council said that the scope existed for a more ambitious 50 basis points reduction, which would give the economy a proper push.
Some members of the real estate industry concurred. Chairperson of the Seeff Property Group Samuel Seeff said that the decrease could have been bolder.
Apart from this though, Kganyago said that the overall outlook had improved and the rand has strengthened over the past few months.
RAND REACTS POSITIVELY
The rand rallied against the dollar on Thursday and bond yields fell after the central bank cut its main lending rate by 25 basis points in a widely expected move to counter floundering economic growth.
At 1600 GMT, the rand was 0.93% higher at R13.8825 per dollar after closing at R14.0125 in a previous session.
“Current domestic conditions unequivocally favoured the SARB cutting rates, especially with the global macroclimate of monetary policy easing meaning any rate cut will likely have a muted impact on South African assets,” said market analyst at Monex Simon Harvey.
The reaction in the rand was tame by historical standards, he added.
Growth in Africa’s most industrialised economy contracted by a surprise 3.2% in the first quarter, swelling calls for the bank to do more to support consumer spending and corporate activity.
But in a media briefing on Thursday, the bank poured cold water on the long-term impact of lower lending rates, saying the weak economy was linked more to fiscal policies and a rate cut could only have a short term effect.
The US Federal Reserve is set to lower rates at its own policy meeting next week, a move likely to spur demand for higher-yielding emerging-market assets, although South Africa’s now lower lending rate may limit interest.
Traders said the rand in the meantime would likely see some increased volatility as investors looked for quick gains.
Bonds also crossed a crucial psychological mark, with the yield on benchmark 2026 government bonds dipping below 8% to 7.975%, 5 basis points lower on the day.
Stocks closed higher, with miners, retailers and financial firms, all of which benefit from the interest rate decision or its effect on the rand, topping the Johannesburg Stock Exchange’s blue-chip index.
The JSE Top-40 index rose 0.33% to 51,733 points and the broader all-share index closed 0.37% higher at 57,847 points.
Among top-40 companies, the biggest gainer was British American Tobacco, up 5.9% on the back of rival Philip Morris’ better-than-expected second-quarter earnings and improved full-year outlook.
Anglo American Platinum’s performance was also boosted by positive second-quarter results, lifting the stock 3.4%, with fellow miners AngloGold Ashanti, Goldfields and Exxaro close behind.