Still a buyer’s market despite lower repo rate

By Stephen de Stadler Managing Director Fine & Country Hermanus, Arabella and Kleinmond

The South African Reserve Bank reduced the repurchase rate (the repo rate) by 0.25% (or 25 basis points, to use the accepted terminology), to 6.50%. This means that the major banks in South Africa will reduce the interest rates on loans advanced to customers by 0.25% as well.

Although many commentators and economists were hoping for a 50-basis point reduction, even the 25 basis points are an important indication that the Reserve Bank wishes to stimulate consumption and thereby attempt to encourage economic growth. Having to pay less interest on loans allows cash-strapped consumers to spend more in non-banking related activities.

Increased consumption leads to an increase in the monetary supply in the economy, which in turn stimulates growth. Economic growth may also lead to the provision of higher levels of employment, which is positive at all levels of economic development.

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