Business: JHI Reviews the Recent Interest Rate Cut
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This week was a week of mixed economic data. Some of the data released included:
- 1% cut in the prime lending rate to 13%.
- CPI increased to 8.6% y/y, up from the 8.1%y/y in January
- PPI contracting to 7.3% y/y in February from January’s 9.2% y/y
- 70% increase in the number of liquidations and a 38.8% increase in the total number of insolvencies recorded for January 2009
The reduction in the interest rate was good news for consumers as it means more money in their pockets. This should be encouraging for the retail sector on particular, however, the announcement of the CPI figure put a damper on this as retailers are battling to adjust prices lower in light of the continuous growth in their purchasing prices.
The PPI figures which showed a contraction for the second month in a row was driven by, in particular, declining agricultural and manufacturing food prices. The lower PPI figure is strengthening the case for further cuts in the interest rate despite rising inflation and the volatility of the Rand. It should be noted that the next MPC meeting is one day after the release of the first quarter GDP figures, which may influence the interest rate decisions as it is expected that the country will enter a period of recession.
However, the effect of the interest rate cuts on property market will only been seen towards the end of the year as people and companies are currently still adjusting form a period of high inflation and interest rates.
One of the biggest concerns for 2009 is increased company and close corporation liquidations. The effect of liquidations is starting to impact on the commercial rental market, with increased defaulting tenants and rising vacancies.
By: Elaine Wilson: Research and Strategic Planning Manager for JHI
Business News Sector Tags: Business|