Cut in Repo Rate

Yesterday, 14 August 2009, the South African Reserve Bank made a surprising announcement regarding the repo rate. The repo rate will be cut by 50 basis points bringing it to 7%. Many economists did not see this cut in the rate coming. They had expected the rate to remain unchanged. Economists had expected this cut to have happened back in June.

On a bond of R500,000, this week's rate cut of 0.5% can give the home owner roughly a monthly saving of about R170. This cut in the repo rate doesn't mean that you should now go out and spend this saving on something else.

The repo rate is also known as the repurchase rate. This is the rate at which the Reserve Bank lends money to other banks.

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Repo rate unchanged and Electricity tarriffs increase

The South African Reserve Bank governor, Tito Mboweni, announced today that the repo rate will remain unchanged at 7.5% - i.e. the prime interest rate will remain unchanged at 11%. Economists had expected a rate cut of 50 basis points and were surprised by this announcement.

Eskom had applied for a 34% increase in electricity tariffs. Today, the National Energy Regulator of SA (Nersa) announced that it had given Eskom (state-owned electricity provider) a 31.3% tariff rise for the 2009-2010 financial year.

Eskom supplies about 95% of the country's power has been battling to cover cost increases while embarking on a five-year expansion programme. Later in the year, Eskom will submit another request for a tariff increase that will include a three-year period until the end of March 2012.

Consumers will be hard hit with the tariff hike, but the poor will be affected the most by these increases. Fuel prices are also expected to increase next month.

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