Johannesburg – 29 March 2018, The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the South African Reserve Bank’s decision to reduce the repo rate by 25 basis points, providing another boost to the rebounding conomy, the Federation’s Chief Economist, Michael Ade, said this morning.
Dr Ade is of the view that the current socio-political and economic situation, characterised by improving business and investor sentiments, has led to the rand appreciating. He said this situation, coupled with the prevailing low inflation and general consumer buoyancy, has given the Reserve Bank room to ease monetary policy.
“The verdict is welcomed as it has the propensity to further stimulate domestic demand in the medium term and provide more impetus to an ever-improving 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 Dr Ade.
He said the decision by the Reserve Bank’s Monetary Policy Committee augured well for local firms at the micro level, which still face increasing input costs amid slowly improving demand and volatile margins. He said the announcement will boost local demand for intermediate manufactured goods, against the backdrop of a variable producer price inflation.
The Producer Price Index (PPI) for intermediate manufactured goods had exhibited a declining trend in 2017, averaging at 4.8%, also over-lapping into 2018, and Dr Ade said it appeared that the volatility would continue.
“The lowered interest rate will contribute towards reducing borrowing costs in companies within the metals and engineering (M&E) sector and in other 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 Dr Ade.
He added that the reduced repurchase rate will also complement a well-received 2018 budget and build on an upheld credit rating by Moody Investors Service. He said these factors, together with the lower-trending inflation rate and a stable outlook prognostic, could spur struggling companies to minimise costs and maximise benefits from the ever-fluctuating selling price inflation.
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