Business seek lower interest rates

The Business Unity South Africa (BUSA) has added its voice to calls for an interest cut.

BUSA’s call comes as the South African Reserve Bank’s (SARB) monetary policy committee will be convening this week to talk about direction of the repo rate which have been kept at 5.5% for about 19 months.

In a statement BUSA said its economic policy committee reviewed the economic and business outlook with special reference to the global economy.

It noted that in a sign of growing concern about deteriorating global economic prospects, various countries had taken further steps recently to ease monetary policy. This suggests there may now be a tipping point for monetary policy in SA, where the repo rate has remained unchanged at 5.5% for nearly two years. Taking into account recent Reserve Bank warnings about slowing global growth and the EU crisis externally, as well as less-than-optimal South Africa growth forecasts for 2012, BUSA believes that a case is now building for a cut in the repo rate. It can help to limit the damage caused to the economy by factors over which SA does not have control.

As inflation is now expected to remain within the target range for the foreseeable future – and faced with a pedestrian growth performance –there is room for SA to contemplate a modest reduction in interest rates in the light of global trends. On the most favourable assumptions BUSA sees growth in the SA economy in 2012 as only at about 2.6%. Economic policy must therefore remain broadly supportive and includes expediting the infrastructural investment programme to which SA has been committed for some time.

While a cut in interest rates therefore is no silver bullet to underpin growth, it can provide useful support at the present juncture when the SA economy is experiencing declines in mining and manufacturing output, with retail sales growth losing momentum and with business confidence at cyclically low levels. Failing other growth enhancing measures and taking all the economic factors into account BUSA believes that, on a balance of risks, monetary policy can now give the state of the real economy a higher priority.

 

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