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MONETARY POLICY COMMITTEE (MPC) DECISION ON INTEREST RATE CUT ON 24 MARCH 2009 FOR SOUTH AFRICA

South Africa’s Reserve bank and the Monetary Policy Committee (MPC) has cut interest rate levels to the lowest since June 2007. Tito Mboweni has dropped South Africa’s repurchase rate (Repo Rate) to 9.5%, dropping the prime lending rate to 13%

This decision to drop cut South Africa’s interest rates did not come as much of a surprise as most economists predicted the Monetary Policy Committee (MPC) to cut the repo rate with 100 basis points.

This decision seems the logical move as South Africa’s economy contracted in the final quarter of 2008. This was the first decline in the country’s Gross Domestic Product in the last ten years after the worldwide financial crisis resulted in a sharp decrease for South African produced products. The electricity industry, manufacturing, water and gas all contributed to the shrinking GDP, while hotels, restaurants and retail just stood completely still. These are expected to be shrinking in the first quarter of 2009.

Tito Mboweni are concerned that the worldwide economy is still very much on a downward trend and getting worse. Borrowing costs can therefore be lowered since the lower oil price took some pressure away from rocketing prices.

The reserve bank has to act in anticipation of the down-side risk of a shrinking economy and recession.

“All of us have to do whatever we can to bring the global economy to some sense of stability” Tito Mboweni said.“The global economic and financial situation is changing very fast. It is no longer business as usual.”

As far as property is concerned this downward trend in the South African interest rate and the anticipated continuous interest rate cuts seems a bit too little too late. FNB’s property guru, John Loos, says the average drop in house prices should exceed 10% year-on-year by July 2009. Rate cuts should only stimulate demand towards the end of 2009, but even this upturn could be very temporary.

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