Central Bank cuts interest rates to 7%

MBABANE – All those with mortgage and vehicle loans will be relieved to know that the Central Bank of Swaziland (CBS) has cut interest rates by one per cent.

This puts the interest rate at 7.0 per cent effective from Monday.
The CBS held its Mone-tary Policy Committee meeting on Thursday to formulate the local mone-tary policy stance follo-wing the move by the South African Reserve Bank (SARB) to cut its interest rates by the same 100 basis points to 7.5 per cent on the same day.

A statement from CBS reads; “Taking into consideration both the international and dome-stic economic conditions, the bank is of the view that a further measure of monetary policy easing is justified to support the local economy.  Against this background, the bank has therefore decided to reduce the Discount Rate by 100 basis points to 7.0 per cent per annum with effect from June 1, 2009.”

The CBS said the country was experiencing unprece-dented, unusual and un-certain economic times where, due to exogenous factors, economic conditions change rapidly.
“The Bank will, therefore, continue to monitor dome-stic and international econo-mic developments with a view to adjust monetary policy when necessary,” the statement reads. 

When coming to the rate cut decision, the bank noted that since the last meeting in April 2009, economic activity in most advanced and emerging market economies continued to be depressing, as reflected in sharp cont-ractions in real gross domestic product (GDP) and a persistent increase in unemployment levels in these economies.

“The bank further noted that global economic pros-pects remain subject to high levels of uncertainty, but, overall, risks to global activity now appear to be more balanced. Although the global economic downturn continues, emerging indica-tors suggest that the rate of contraction may now be moderating, supported by moderating commodity prices and policy measures undertaken in response to the adverse consequences of the global financial crisis,” it says.
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Replicating the global growth trend, the CBS said real economic growth in Swaziland was estimated at 2.6 per cent in 2008 compared to 3.5 per cent in 2007.
It adds; “The second round effects of the financial crisis are gradually showing their head as indicated by the decline in demand for the country’s exports by develo-ped countries parti-cularly affecting the manufacturing sector. The low growth rate is likely to persist and deteriorate further this year when the full effects of the crisis would have worked its way through the real economy.”
The CBS further noted that consumer inflation continued its downward trend that commenced in September 2008; declining from 10.5 per cent in March 2009 to 8.8 per cent in April 2009.

“The downward trend in the general price level was due to lower growth in almost all the components of the consumer price index (CPI), with a substantial fall recorded by the index for ‘housing, water, electricity, gas and other fuels’,” the statement says.
Year-on-year growth in credit extension to the private sector decelerated from 6.6 per cent in January to 4.6 per cent in March. This growth is below the annual infla-tion rate, implying that credit extension to the private sector is declining in real terms.

“Of particular concern to the bank was the notable slowdown in credit extended to the business sector over the past few months as this component of credit extension typically fina-nces productive activity,” it says.