Repo rate cut won’t benefit sinking companies – economist
Econometrix chief economist Dr Azar Jammine says debt-laden South Africans will benefit the most from the latest cut in the repo rate.
The Reserve Bank cut interest rates by one percentage point for the second time in just less than a month, bringing the repo rate down to 4.25% on Tuesday.
Central banks around the world have cut interest rates in an attempt to offset the economic damage from the coronavirus pandemic.
Jammine says those with mortgages, car payments or credit card debt will have more money left at the end of the month.
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"It benefits the economy for those who have loans - whether it housing loans for individuals or car loans for individuals or business loans - they will now be paying less interest.
"But for companies who are in dire straits and have lost all their revenue as a result of the Covid crisis and the lockdown, what they need is cash. A reduction in interest rates will not make much of a difference.”
He also believes the Reserve Bank’s prediction of a 6.1% decline in GDP will prove to be more or less correct.
"The general trend in forecast has been revised downwards to more negatively than 5% in recent times, especially with the extension of the lockdown.”