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Mild interest rate relief is on the cards
DEBT REPAYMENTS
INTEREST rates could come down by between 1% and 2% by the end of year but don't expect more, economists warn. This week there were encouraging reports that Reserve Bank governor Chris Stals views market conditions as positive for an easing of monetary policy, but Stals also said that stability in international markets was a precondition for lower rates. Henry Flint, economist with stockbroking firm Mathison and Hollidge, says interest rates will come down but at a slower pace than many expect. There is still risk in global markets, and this will deter Stals from easing monetary policy too soon. "The overall outlook, however, is positive, but don't expect drastic cuts within the next six months," he says. Flint predicts a cut of 1%, maybe by the end of this month or early November, with a 2% or 3% cut on the cards next year. Dave Mohr, chief economist with Citadel, is not overly optimistic that rates will drop this year. This despite recent interest rate cuts in the US, UK and Spain, and improved local market conditions as a result of the rand stabilising on the back of a weaker dollar. Mohr says international markets are far from stable. SA is still plagued by a huge trade deficit, high credit extension and rising inflation. "I would be cautious in predicting an early cut in interest rates," says Mohr. He believes interest rates will come down by 1% early next year and another 5% during the year. "Consumers should not count on a series of rate cuts by Christmas." Jacques du Toit, senior economist with ABSA Bank, is more positive. He believes interest rates will come down 1% this quarter. By the end of next year, he says, the prime rate could be as low as 19.5%. Du Toit foresees local and international market conditions stabilising towards the end of this year. While credit extension is still high, he says, figures will be forced into a decline by the present interest rate squeeze. He says the SA economy is slowing and in desperate need of lower interest rates. Luke Doig, economist with Credit Guarantee, believes interest rates could drop by 2% before the end of the year. He also predicts a 2% cut in the first half of next year, and another 2% drop in the second half. "A 5% to 6% drop over the next 15 months is absolutely necessary," says Doig.
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