The SA Daily
19 September 2019
Rates set on rest amid risks
- Rate cuts theoretically should stimulate the aggregate demand of both consumer and investment spending, leading to GDP growth and employment creation. However, the SA economy is suffering persistently low confidence amid politically driven policy uncertainty, as well as unpredictable power supply — none of which would necessarily respond to the efficacy of rate cuts. We’d therefore expect the SARB to hold the repo steady today.
- The Fed has met expectations in cutting its policy rate by 25 bps due to the adverse impact of the trade war on both the global and US economy; this follows the Fed’s 25 bps cut in July. The US economy is still quite resilient — but the recent yield curve inversion may signal a recession. US consumer sentiment is also lower now than a year ago.
- Global central banks too face weakness in their respective economies and too have been easing monetary policy.
- The SARB too cut the repo by 25 bps in July. However, the bank will likely keep rates on hold today, with which we’d agree because of the plentiful and abiding rand-negative risks. National Treasury estimates that a depreciation of the rand by R1 adds R21bn to gross loan debt and R2bn to debt-servicing costs. SA’s gross government debt is now expected to exceed the February 2019 Budget forecasts; and, Moody’s foresees SA debt reaching 70% of GDP by 2020.
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