South Africa Unexpectedly Cuts Interest Rate to 7%

By Nasreen Seria and Ron Derby

Aug. 13 (Bloomberg) -- South Africa’s central bank unexpectedly cut its benchmark interest rate by half a percentage point, the sixth reduction since December, to curtail the economy’s first recession in 17 years.

The repurchase rate was lowered to 7 percent, Governor Tito Mboweni said in a televised speech from Pretoria today. Only three of 27 economists surveyed by Bloomberg predicted today’s decision, while the rest expected the rate to be left unchanged.

The Reserve Bank resumed cutting its benchmark rate, after keeping it unchanged at the last Monetary Policy Committee meeting in June, as manufacturing data showed the economy may have contracted for a third consecutive quarter in the three months through June. The bank also has room to lower interest rates after the inflation rate fell to a 22-month low of 6.9 percent in June.

“This recession is turning out to be a little deeper and a little longer than we had expected,” said Colen Garrow, an economist at Brait SA in Johannesburg who forecast today’s rate cut. “Extraordinary times call for extraordinary measures. Inflation is going to take care of itself.”

The rand was at 8.0688 against the dollar as of 3:43 p.m. in Johannesburg from 7.9840 before Mboweni began speaking. The yield on the R157 government bond, due 2010, fell 8 basis points, or 0.08 percentage point, to 8.29 percent.

Recession

Manufacturing, which accounts for 15 percent of the economy, plunged an annual 17 percent in June, the same decline as the previous month, the statistics office said on Aug. 11. Retail sales fell for a fifth consecutive month in June, dropping 6.7 percent from a year ago, Statistics South Africa said yesterday.

“It is likely that the domestic economy contracted in the second quarter of this year,” Mboweni said. “The domestic economy remains constrained by weak global and domestic demand.”

Gross domestic product fell an annualized 6.4 percent in the second quarter, the biggest drop in almost 25 years. The statistics office will publish second-quarter GDP data on Aug. 18.

Mboweni has faced growing pressure from labor unions to continue cutting interest rates to help curtail the recession and ease job losses. The Congress of South African Trade Unions, the country’s biggest labor federation, called for a 2 percentage point rate cut today.

Inflation Outlook

Most economists expected the central bank to keep the benchmark interest rate unchanged as wage demands of as much as 15 percent threatened to boost inflation. Eskom Holdings Ltd., the state-owned power utility that increased electricity tariffs by 31 percent this year, agreed on Aug. 8 to increase employees’ pay by 10.5 percent.

That has been partly offset by the rand’s 32 percent surge against the dollar since March, helping to ease import costs.

Inflation will probably ease into the target by the second quarter next year and remain there until the end of 2011, Mboweni said. The main risks to inflation are from “cost-push pressures” such as rising oil and electricity costs, he added.

“Notwithstanding upside cost pressures, the adverse economic conditions appear to tilt the balance of risks to the inflation outlook towards the downside over the medium term,” the governor said.

Mboweni, 50, will leave the Reserve Bank in November after more than a decade as governor. He will be replaced by Gill Marcus, a former deputy central bank governor and most recently chairwoman of Absa Group Ltd., the country’s biggest retail bank.

To contact the reporters on this story: Nasreen Seria in Johannesburg nseria@bloomberg.net; Ron Derby in Johannesburg at rderby1@bloomberg.net
Last Updated: August 13, 2009 09:46 EDT

For information on South African property go to www.ipsinvest.com

IPS moves London office - more convenient and better technology!

International Property Solutions (IPS), the business started its life in London, helping expats buy South African property back home over 6 years ago. The business model was to provide the same experience buying property as if you were back in South Africa and so our offices had everything you needed to enjoy that experience!

When we chose the location, it was a selfish decision. Scott Picken, IPS CEO was living in Wimbledon and did not see the point of commuting, especially when 60 000 South Africans lived in Wimbledon alone. Many people said we needed to be in the city to allow people who live in other parts of London to have easy access to our services. Scott says, "The thought of the commute into town every day just seemed too much!"

However Scott moved back to South Africa at the end of 2007 and there has been a stronger and stronger reason to move to the centre of town for this convince to clients. Also at their last event in May 2009, which was hosted from the Wimbledon Office - there were just too many people and it didn’t work.

Therefore IPS has moved their offices to Green Park (central London). The new offices provide everything we had in Wimbledon, but also allow us to upscale when we need to provide for bigger events and most importantly from a technology point of view. Scott Picken says, "These new premises provide us with exactly what we are looking for to ensure we can service our currents clients in London and the many we will assist in the future."

IPS CEO Update | Aug 09 | Knowledge is the only way to manage Uncertainty!

2009 continues to be a unbelievable year. Only yesterday Mark Mobius, top banker in the USA said the market could loose 30% on the highs of the last 3 months of the stock market and this is amongst all the positive news which has been coming through. The only thing we can be certain of is “uncertainty” and as Ian Fife said, the only way to handle this uncertainty is through KNOWLEDGE. IPS therefore continues its drive for education, providing live presentations on “How to buy a home?”, “How to become a property investor?” and then also Webinars on the South African, Australian and UK property market. We have also recently launched a website www.HowToBuyaHome.co.za which provides you with everything you need to know about buying property and it is also in Zulu. The Property Charter is determined to enable property ownership through all the people of South Africa and this is our aim to provide a solution. Therefore we believe that through this collective education we can help our clients make educated and informed decisions about their investments and their future!

This week we also proved the success of working together and using technology with the launch of Kelvin Manor, our latest investment in Sandton, where we helped 58 people invest in 8 days. Who said the market had cooled off? Come down and see what all the excitement is about.

Finally in the UK and Australia there have recently been sleep outs (people sleeping at a site the night before) to ensure they were able to purchase the next day when the property launched. Come to one of our Webinars and find out why? Click here to view.

Here’s to an exciting remainder of the year!

Go to www.ipsinvest.com for more information.