Johannesburg, 21 May 2020 – The 50 basis points interest rate cut announced by the South African Reserve Bank (SARB) this afternoon will bring further relief to the domestic economy and the embattled businesses operating in the metals and engineering (M&E) sector, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.
Today’s interest rate cut follows a 100-basis point slash in both March 2020 and April 2020 and a 25-basis point cut in January 2020, and brings the repo rate down to 3.75 percent.
Speaking after the Governor’s announcement this afternoon, SEIFSA Economist Marique Kruger said the decision to reduce interest rates for a fourth consecutive time this year is encouraging as it gives some reprieve to companies in the domestic economy in general and in the M&E sector in particular.
“The Bank’s decision was generally expected, especially given the current state of the domestic economy, which is in dire need of any kind of boost to ignite business activity against the backdrop of the global coronavirus pandemic. Given the bleak state of the domestic economy, the Reserve Bank’s decision to ease monetary policy for the fourth time in less than six months is encouraging,” said Ms Kruger.
She added that even if indebted businesses don’t directly benefit financially due to subdued economic activity, the expansionary monetary policy decision has the potential to boost business, investor and consumer confidence.
“Hopefully, we will begin to see some degree of recalibration of confidence. Importantly, expanding the monetary policy stance could encourage capital inflows, increase money supply and eventually boost demand for the M&E industry’s products, without burdening the very fragile rebound in growth.
“The essence is to stimulate domestic demand in the short term and provide more impetus to an ever-deteriorating domestic outlook. The decision provides some relief for beleaguered businesses which face a multitude of challenges underpinned by non-descript domestic growth, subdued demand, increasing input costs and operational expenses,” she said.
Businesses are currently in an uncharted territory and Ms Kruger said there is a need to increase focus on various interventions that will assist in reducing manufacturers’ cost base towards improved business activity and competitiveness.
Accordingly, she said, a key recommendation is for policy makers to complement the welcomed initiative by the SARB to cut the repo rate with measures aimed at directly reducing input costs to local businesses and effectively regulate the pricing of key inputs from sole suppliers in order to ensure sustainability in the medium term.