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Friday, September 10, 2010

Drop in the Repo Rate- Good news for consumers

The South African Reserve Bank’s Monetary Policy Committee lowered the key monetary policy interest rate – the repo rate – by 50 basis points to 6%.

SARB governor Gill Marcus made the announcement of the cut in the Reserve Bank rate during a media conference in Pretoria. She pointed to increased unemployment and moderate growth in the manufacturing sector and inflation at a lower rate as well as a reduced GDP growth rate of 2.6% which had been driven down by a large contraction in mining (which dropped over 20%) influencing the decission to drop the repo rate by 50 basis points.

As a result, the Major Banks have also announced that their lending rates to the public, (i.e. prime and variable mortgage rates) will be cut by the same magnitude to 9,5%, effective from 10 September 2010.

The rate was last cut in March '10 but was kept on hold at the May and July meetings of the Reserve Bank's monetary policy committee. Interest rates have been cut by a cumulative 600 basis points since December 2008, meaning that the mortgage rate will now be at its lowest level since mid-1974, and the prime rate will be at a 30-year low.

Based on the latest cut in interest rates, mortgage repayments will now be about 31% lower compared with late 2008, when the mortgage rate was at a level of 15,5%

Interestingly though, many point to the fact that SA's interest rate vs. inflation rate comparison (nominal interest rate - inflation) reveals that SA is currently still rated as the second highest rate (nominal interest rate - inflation) in the world, second only to Brazil

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