Governor of the Reserve Bank, Tito Mboweni, caught the market and most economists by surprise today, by cutting the interest rate by 50 basis points, to 7 %, a positive sign that may signal a reversal of the credit crunch.
The interest rate is an indication that the recovery of the economy has not been progressing as speedily as the government would like it, given the previous interest rate cuts since December. It could also be Mboweni bowing to the pressure from trade union federation COSATU for a cut in the interest rate. Finally, the cut may be a reflection of the slow but certain decrease in the rate of inflation.
The cut in the interest rate eases the pressure on family and buusiness incomes, and should have a positive effect on tourism.
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