Drop in Interest Rates?

Well the news seems positive towards a rate cut.

If we look at the US keeping rates down for 2 years and the state of the finances on the Eurozone this spell better times for property owners and buyers in SA.

This seems to be a great time to transfer money to SA or send money from UK and invest in property at a decent interest rate.  With the Rand being up against the Pound this is even better.

Rate cut expectations grew yesterday as Finance Minister Pravin Gordhan and Reserve Bank governor Gill Marcus warned of the dangers posed by unstable global markets.

Speaking at separate events, the key financial policymakers highlighted contagion risks from abroad.

Marcus told the US Chamber of Commerce in Johannesburg that the global economy was “moving perilously close towards a precipice”. And she said: “In the event of a significant global downturn (South Africa’s) monetary policy will react appropriately.”

Gordhan said at the Banking Association’s summit: “The uncertainty of the stability of the European banking system, the European sovereign debt crisis and the recent US downgrade constitute serious downside risks.”

Marcus’s comments were interpreted as a sign the bank’s repo rate could be cut further from its 30-year low of 5.5 percent. Citi strategist Leon Myburgh said rates on forward rate agreements fell 10 basis points in the morning.

Until late last week, they had been signalling a rate hike but they changed direction on Friday, Myburgh said, after a week of poor economic data at home and abroad.

Before last week’s market turmoil, the market expected the next move would be up.

Citi economist Jean-Francois Mercier said Marcus’s comment did not signify “an imminent cut” but suggested the bank’s monetary policy committee would ease further if the global situation kept deteriorating.

He said: “The start of policy tightening now appears a long way off, maybe not before the second quarter of next year at the earliest.”

Marcus referred to South Africa’s disappointing second quarter performance, with manufacturing and mining “likely to have subtracted growth”.

And she cited second quarter growth of only 0.2 percent in Germany, the “powerhouse” of Europe, and the revision of US first quarter growth from 1.8 percent to 0.4 percent as evidence of “a synchronised downturn in advanced economies”.

Both Gordhan and Marcus quoted the work of researchers Carmen Reinhart and Kenneth Rogoff, on lessons from financial crises. Reinhart and Rogoff divided financial crises into three phases: a prolonged fall in asset prices; a fall in output and employment; and finally an explosion in government debt.

Gordhan noted: “Internationally, we are seeing the third phase in full swing.”

Reflecting fears of sovereign risk, gold continued to break new records early yesterday, as the market bet that the US Federal Reserve would announce a new wave of quantitative easing at the weekend.

Recent market moves carry some benefits for South Africa. The rand, which traded at around R7.22 against the dollar yesterday, is weaker than its R6.60 level in April – a potential benefit for local manufacturers.

And a falling oil price could offset the inflationary effect of the weaker currency .

Also good news is that the Reserve Bank reported yesterday its lead indicator rose in June to 133.8 points from 131.4 – reversing a downtrend, with seven of its 10 available components positive. This points to possible economic resilience

Send money to SA now.