Economist explains downside of cutting repo rate further
Our economy's been spared further damage, thanks to the decision by the SA Reserve Bank to leave the repo rate unchanged.
Economist Dawie Roodt does not think the reserve bank should increase the interest rate at the moment, but feels they have gone out of their way to support the economy.
"What we need now is some other structural adjustments, monetary policy as done what they could do," he said.
Roodt's been commenting on the central bank's announcement that it's leaving the repo rate at 3,5%.
The prime lending rate remains 7%.
The Reserve Bank says it took this decision amid concerns of darker days ahead.
It forecast the economy will shrink by 8.2 percent this year, but some analysts foresee a double-digit contraction due to a fallout from the coronavirus pandemic.
We've had several rates cuts this year.
READ: Repo rate sticks at 3.5% with 'no further cuts in near term'
Roodt explains the disadvantages of low-interest rates.
"The downside of cutting interest rate too much are things like for example the rand coming under tremendous pressure then what it is already."
And the other downside is inflation can become potential problem over time. Of course another downside is if we cut interest rate even further then you actually reduce your capacity to do something in the future, when you need ammunition," he added.
