Johannesburg – 01 January 2020, The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the South African Reserve Bank’s decision to unanimously reduce the repo rate by 25 basis points, providing another boost to the stagnant economy, the Federation’s Economist, Marique Kruger, said this afternoon.
Ms. Kruger is of the view that the current socio-political and economic situation, characterised by slow business activity and poor investor sentiments, led to the rand depreciating for the better part of last year, also resulting in higher prices for imported inputs. Moreover, low domestic demand in a contracting economy and declining industrial production warrants the need for an expansionary monetary policy. She said the initiative by the bank will help stimulate demand and reduce borrowing cost for small businesses.
She said given that the bleak state of the economy compounded by electricity supply constraints had kept economic activity muted with extended negative ramifications on business confidence, the Reserve Bank’s decision to ease monetary policy is encouraging.
“The essence is to stimulate domestic demand in the short term and provide more impetus to an ever-deteriorating domestic outlook. Although overdue, the decision also highlights the need to use monetary policy sparingly as part of a stabilisation policy to stimulate growth at the macro level,” said Ms. Kruger.
“Importantly, the lowered interest rate will contribute towards reducing borrowing costs in companies within the metals and engineering (M&E) sector and in other interdependent industrial sectors, towards better production levels. This is imperative, given the significant contribution of these sectors to economic growth and the enhanced level of existing inter-linkages,” said Ms. Kruger