Business Eswatini says the decision by the Central Bank of Eswatini (CBE) to go against the grain last week and slash its Repo Rate by 25 basis points to 7.5% must be applauded.
In contrast, in the same week, South Africa decided to keep theirs steady at 8.25%.
The change in Eswatini has effectively increased the interest rate spread between the two countries by 75 basis points, which is not unusual especially when viewed in the context of years gone past.
However, the reduction here will essentially mean that debt service in South Africa will continue to be expensive while in Eswatini it will come down commensurate with the revised bank rate.
BE’s Chief Executive Officer, Nathi Dlamini in a press release notes that they welcome the revised rates and also applaud the CBE for their confidence in their independent monetary policy stance.
“The spread of 75 basis points between the two countries speaks to the distinct approach this country has chosen to revive the economy from its depression, especially after the pandemic. And to us at BE, this is not a bad thing especially given that inflation seems to have moderated in recent weeks with minimal prospects of a jarring upswing.”
BE notes that they have been further assured by the Central Bank that various scientific and econometric models were extensively tested under multiple scenarios to establish the validity of the CBE’s theory that led to the recommendation of an interest rate cut to the MPCC.
“Consequently, the decision eventually taken by the MPCC to slash the rate by 25 basis points in its recent sitting was predicated on these models. It is also encouraging to note that these models did not discount the importance of maintaining price stability as well as respecting the protocols necessary to maintaining the country’s peg to the Rand.”
The business organization notes that one of the troubling fears which is uppermost on everyone’s mind was the possibility of capital outflows which could be buoyed, albeit inadvertently, by the interest rate cut.
“This fear is not without basis as investment capital naturally gravitates towards environments with higher returns. To this end, BE was advised by the bank that this risk was considered in its totality and mitigation measures already put in place by the CBE to discourage any significant capital outflows.”
Dlamini further states that their position as BE is that Eswatini’s economy stands to benefit from this reduction, especially after many cycles of interest rate hikes which had begun to seriously undermine the country’s gross domestic product potential.
The CEO said it is an open secret that many companies around the country have been languishing under an expensive debt burden for a while now and any form of relief under these circumstances, be it monetary or fiscal, is welcomed by the private sector.
“Some observers would argue that 25 basis points are too negligible to make a big difference, and their opinion would not be incorrect. However, to companies with big overdraft facilities and consumers with massive mortgage payments, the difference they would see in their repayment schedules would not be anything to sneeze at.”
Dlamini concluded by stating that they hope that this is the beginning of many cycles in which interest rates will steadily go down.