Business and trade unions have welcomed the South African Reserve Bank’s decision to cut the interest rate by 100 basis points, but said more cuts would likely be needed in light of the global financial crisis.

Reserve Bank governor Tito Mboweni on Tuesday announced the 1% cut, bringing the repo rate down to 9,5% and the prime lending rate to 13%.

The SARB had brought forward its monetary policy committee meeting by more than three weeks after a series of weak economic data had been released in recent weeks, newswire Reuters reported.

Business Unity South Africa (Busa) noted that the MPC’s intention of lowering interest rates faster than previously indicated, with the MPC set to meet more frequently, now reflected the needs of the still rapidly changing economic circumstances in the country.

A further cut in interest rates would help to strengthen business and consumer confidence “at a crucial economic juncture”, said Busa, expressing the hope that the prime interest rate would reach 12% by May.

The South Africa Chamber of Commerce and Industry (Sacci) agreed that the 1% cut was the correct measure to take in light of the difficult economic circumstances facing businesses and consumers.

It added that this might well bring some relief for small and medium-sized enterprises, specifically, as these companies were accumulating debts to sustain their enterprises.

Meanwhile, financial services provider Wesbank said the cut was good news for consumers, bringing the total payment reduction on vehicle financing down further.

“We welcome the decision by the MPC to accelerate the downward trend in interest rates, as it will give highly geared consumers and businesses some much needed financial relief amid the ongoing global financial crisis,” Wesbank executive head of sales and marketing Chris de Kock said on Tuesday.

However, he noted that the interest rate reductions would likely only start impacting positively on vehicle sales towards the end of the year.

Non-bank mortgage provider Integer Home Loans CEO Simon Stockley agreed that the cut was welcome news for hard-pressed consumers, adding that the more frequent MPC meetings would hopefully allow for a “more responsive approach” to the interest rate environment.

Further, trade union Solidarity expressed the hope that the cut in interest rates would help stimulate local demand and assist in countering further job losses.

“We hope that the decision to cut interest rates is not too late and that it can still prevent the South African economy from falling into a recession. We hope that today’s decrease will be followed by a further 1% reduction in April,” Solidarity spokesperson Jaco Kleynhans commented.

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