Prime Interest Rate Cut To 8.5%

The SA Reserve Bank (SARB) will cut the repo rate by 50 basis points to five percent, governor Gill Marcus said just hours ago!

This follows nine consecutive Monetary Policy Committee meetings where the repo rate remained unchanged at 5.5 percent, after it was reduced by 650 basis points between mid-2008 and November 2010.

The prime rate is now to 8.5 percent. Good for borrowers, bad for savers! There is virtually nowhere to put cash with safety and get a positive return above inflation anymore without looking at diversifying your money in areas such as property, equity and cash. The returns will largely depend on one's tolerance for taking risk.

The primary objective of monetary policy in South Africa is to achieve and maintain price stability in the interest of sustainable and balanced economic development and growth. Price stability reduces uncertainty in the economy and, therefore, provides a favourable environment for growth and employment creation. Furthermore, low inflation contributes to the protection of the purchasing power of all South Africans, particularly the poor who have no means of defending themselves against continually rising prices.

Monetary policy is set by the Bank's Monetary Policy Committee (MPC), which conducts monetary policy within a flexible inflation-targeting framework. This allows for inflation to be out of the target range as a result of first-round effects of a supply shock and for the Bank to determine the appropriate time horizon for restoring inflation to within the target range. This flexibility does not relieve the Bank of its responsibility with respect to returning inflation to within the target range but allows for interest rate smoothing over the cycle, which may mitigate any output variability from the monetary policy response to the shock.

The SARB therefore determines the interest rate based on its mandate to keep inflation within a target of between three and six percent. Consumer price inflation was 5.5 percent for June while producer price inflation was 6.6 percent in May.

The following Statement of the Monetary Policy Committee was issued by Gill Marcus son 2012-07-19:

Since the previous meeting of the Monetary Policy Committee there have been further indications of a generalised slowdown in the global economy, amid the continuing risks posed by the banking and sovereign debt crises in the Eurozone. This negative outlook has contributed to renewed monetary policy easing in a number of countries, including in emerging market economies, in an environment of declining commodity prices and subdued global inflation. Read more

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