Today, 12 March 2009 might be D-day for an early interest rate cut. If poor manufacturing numbers for January come out today, they would just be another sign that the economy is under severe stress. Take the motor industry for example, it is in serious trouble, and the rest of the manufacturing sector is in the biggest decline in 48 years.
Economists predicted that the Reserve Bank’s Monetary Policy Committee (MPC) would meet shortly after the weak growth figures were announced last month, in order to cut interest rates further.
Most central Banks around the world have already cut interest rates to the bone, but the South African interest rate has come down with a small percentage of 1.5 since the start of the financial crisis.
Manufacturing figures for January could give us a good idea as to what direction the economy is heading for the first quarter. An announcement on early rate cut has however not been forthcoming, and if it takes a lot longer it could be a bit too late for an interim drop. A cut this week could still be regarded as an interim measure. A meeting next week, or the week after, when the latest inflation numbers are announced , could be seen as an emergency measure in stead of a preventative measure. The markets could then even react negatively to it.
The national treasury expects economic growth of 1.2% this year, but some experts reckon this is a bit optimistic. Cutting South Africa’s interest rates is one of our only trump cards separating us from a property collapse as has been seen in the US and UK. The question to be answered by the Monetary Policy Committee (MPC) is not so much if but rather when the South African Interest rate should be cut to give the South African economy and in particular the South African Property market a boost which will put things back into gear.
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