Reduction in the repo rate will stimulate investments

Within the domestic and global environments the South African inflation risks have reduced considerably since the previous MPC meeting.

Domestically the fiscal deficit came in lower than expected, Moody's retained the country's investment grade rating and also changed the outlook to stable, the rand appreciated considerably and a number of political changes had been effected that improved business and consumer confidence. In addition the actual CPI surprised considerably to the down side, which points to low price pressures prevalent in the economy. In addition, the increase in the VAT-rate as well as bracket creep further contributed to downward pressure on demand, which should in itself put downward pressure on price increases.

Internationally the Brexit fears subsided somewhat, while inflation remains under control. It is only the possibility of a trade war that can contribute markedly to higher consumer price inflation.

The SARB should have reduced the repo rate by 25 basis points in January, but refrained from doing so due to being conservative as well as being afraid of some of the above risks creating upward pressure on consumer price inflation. However, with many of these risks now in subdued territory - acknowledging that there will always be risks around - there was very little reason to not reduce the repo rate.

In fact, a reduction in the repo rate was long overdue. South Africa needed this 25 basis point reduction in order to stimulate investments, which is necessary for economic growth and employment creation - something the rating agencies require and the country is in desperate need of.

For further enquiries or to set up a personal interview, contact Andre Venter at 083 251 3274.