The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the South African Reserve Bank’s surprise decision to reduce the repo rate for the second time in less than a month, the Federation’s Economist, Marique Kruger, said this afternoon.

The Reserve Bank has cut interest rates by one percentage point, bringing the repo rate down to 4.25 percent. The 100-basis point cut follows a 100-basis point cut on March 19, as the Government rallies to support businesses suffering from the COVID-19 lockdown. In January, the Bank cut interest rates by 25 basis points.

Speaking after the announcement, Ms Kruger said SEIFSA welcomes the decision as local businesses need every support available. The lowered interest rate is, she said, encouraging and has the potential of reducing borrowing costs for struggling businesses by boosting cashflow, while stimulating consumer demand and boosting production towards better growth.

“The decision provides some relief for businesses which continue to operate in a tough economic environment, underpinned by non-descript domestic growth, subdued demand, high unemployment and low business confidence,” said Ms Kruger.

She added that the monetary policy intervention is welcome, especially given the negative gross domestic product growth in the third and fourth quarters of 2019, which effectively catapulted the South African economy into a technical recession.

“The verdict by the Reserve Bank is, therefore, encouraging as the need to further stimulate demand, improve on an ever-weakening output, and arrest a gradual decline into an economic depression is vital.”

Generally, the lowered interest rate has the potential to reduce borrowing costs of direct investors and domestic companies, thus benefitting key industries which are drivers of the metals and engineering sector’s domestic demand and supply patterns, and boosting overall demand for its intermediate products, against the backdrop of the global coronavirus pandemic.