The Steel and Engineering Industries Federation of Southern Africa (Seifsa) has welcomed the South African Reserve Bank’s (SARB’s) decision to reduce the repo rate by 25 basis points, thereby “providing another boost to the stagnant economy”.
The federation’s economist Marique Kruger is of the view that the current sociopolitical and economic situation, characterised by slow business activity and poor investor sentiment, led to the rand depreciating for the better part of last year, also resulting in higher prices for imported inputs.
Moreover, she says, slow domestic demand in a contracting economy and declining industrial production warrant the need for expansionary monetary policy.
The initiative by the bank will help stimulate demand and reduce borrowing costs for small businesses, Kruger says, adding that, “given that the bleak state of the economy compounded by electricity supply constraints had kept economic activity muted with extended negative ramifications on business confidence, the SARB’s decision to ease monetary policy is encouraging”.
She explains that the essence is to stimulate domestic demand in the short term and provide more impetus to an ever-deteriorating domestic outlook.
“Although overdue, the decision also highlights the need to use monetary policy sparingly as part of a stabilisation policy to stimulate growth at the macro level,” she notes.
Additionally, Kruger says the lower interest rate will contribute towards reducing borrowing costs for companies within the metals and engineering sector and in other interdependent industrial sectors, towards better production levels.
“This is imperative, given the significant contribution of these sectors to economic growth and the enhanced level of existing inter-linkages,” she concluded.