20/07/2017 18:39 SAST | Updated 20/07/2017 18:43 SAST

Here's What The Surprise Interest Rate Cut May Mean For You

It seems to have taken the experts by surprise.

Siphiwe Sibeko / Reuters
South Africa's Finance Minister Malusi Gigaba.

A cut in interest rates appears to have taken economists by surprise.

This comes after an announcement by South African Reserve Bank governor Lesetja Kganyago that the repo rate would be reduced to 6.75 percent from 7 percent. This is the first time in five years that the bank has cut interest rates.

Economist from KADD Capital, Elize Kruger, said the interest rate cut was unexpected. "We were expecting the cut in September" she said. Kruger said it was also surprising at a time when the South African economy is dipping.

"They decided to do this independent of other factors and this could help the economy and boost confidence," she added.

KPMG economist Christie Viljoen also saidthe repo rate cut was unexpected. "In the past, the reserve bank said they can't lower interest rates because of high risk, this means the risk is lower now," she explained.

From 23 economists surveyed by Bloomberg ahead of the meeting, only three had predicted any change to the repo rate. The rand weakened after the decision was announced, and at publication time was down 0.8 per cent for the day against the dollar.

Kganyago highlighted an improving inflation outlook and deteriorating growth — though there were risks to the inflation outlook, he said. "Despite a degree of volatility‚ the rand exchange rate has been relatively resilient in the face of expected monetary policy tightening in some advanced economies‚ as well as domestic political risks and uncertainties. Risks to the inflation outlook still remain."

Meanwhile, this could work out well for South Africans in debt, as they will now have a little more to spare. According to Kruger, consumers will now be paying 0.25 percent less on loans for houses and cars.

The prime lending rate will resultantly drop from 10.5 percent to 10.25 percent, offering South African consumers some welcome relief.