Decrease in interest rate good for economy – FNB

Decrease in interest rate good for economy – FNB

July 21  2017 – ECONOMISTS have welcomed the decreased interest rates, saying that it would have a positive impact on many sectors of the economy, including agriculture, investment, and franchising, today.

This comes after the SA Reserve Bank (Sarb) announced on Thursday, that the Monetary Policy Committee had decided to reduce the repurchase rate by 25 basis points, to 6.75 per annum, due to the improved inflation outlook and the deteriorated growth outlook.

The prime lending rate, the figure charged by banks to customers, will now decline to 10.25 percent.

Paul Makube, senior agricultural economist at FNB, said the decreased interest rate was a welcome breather as it would help ease pressure on farmers and agribusinesses, further improving profitability. 

“The reduced costs of doing business will eventually benefit the consumer in terms of lower food prices,” says Makube.

“It will further improve the feasibility of delayed or stalled investment projects which have a potential to unlock employment opportunities in the sector.”

Chantal Marx, head of research at FNB Securities, said the cut and persistence of the governor’s dovish tone highlighted that now may be a good time to consider increasing exposure to interest rate sensitive stocks locally.

“Usually when the reserve bank cuts rates, consumers receive some relief in terms of debt repayments and may have a little more to spend on discretionary goods, this will be boosted by lower inflation as well. Interest rate sensitive stock include clothing, furniture, and car retail and travel and leisure stocks,” Marx said. 

Riaan Fouché, head of FNB Franchising International Development, said the decreased interest rate would assist with lower debt service costs for franchisees and more cash flow.  

“This enables expansion strategies of Franchisors which will have a positive impact in creating employment within the country. It will also allow franchisees the opportunity to settle existing debt a little quicker than before,”says Fouché.

Reserve Bank governor Lesetja Kganyago warned though that a number of risks to the inflation outlook persisted and that the rand remained vulnerable to heightened political uncertainty, global monetary policy developments and possible further credit ratings downgrades. – ANA