30 April 09 MPC Rate cut - NB!

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Lord Anubis

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Many are expecting another 100bps cut...if the rate cut does take place on 30 April, it is doubtfull that banks will be able to pass it immediately on overnight house and car payment debit orders coming off on 1 May..so don't bargain on its relief immediacy and budget it in...or what do you think?
 
Spoke to a banker today. Theoretically banks can lower their rate the same day as the announcement, in time for the debit run that same night..but will they???
 
Lord Anubis said:
Spoke to a banker today. Theoretically banks can lower their rate the same day as the announcement, in time for the debit run that same night..but will they???
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would probably not be a good idea given that the reserve bank makes the repo change effective from the next business day.
 
Well if the banks delay passing the predicted 1% on to the consumer immediatly ie not dropping house debit orders by 1 May..it will be theft..NCA will get them!
 
Interested is calculated daily, so it will in any case be a minuscule difference.
 
Let me explain more clearly. On, for instance, R500,000 debt 1% interest = R13.70 per day.

It is irrelevant when the debit order goes off - if it is to late to include the new rate then it will reflect in the next debit order (typically the "debit order pipeline" is loaded a couple of days before it is executed).

Interest is calculated daily. Should the banks drop the rate on 30/4 it means that you save R13.70 on the day (and for the month of April). If it is too late to change the debit order your next one will be R13,70 less (plus off course R13.70 x 31 for every day of May at the new rate).

If they change on 1/5 then it is a moot point. Referring to the OP - whether they change the rate on 30/4 or 1/5 is not going to make a big difference - you still accrued daily interest on the old rate for most (if not all) of April.

Yes, the saving on May's debit order will not be minuscule. But it is for April.
 
Lord Anubis said:
Well if the banks delay passing the predicted 1% on to the consumer immediatly ie not dropping house debit orders by 1 May..it will be theft..NCA will get them!
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actually there is no law that compels the banks to raise or drop their prime rate with a change in the repo rate. in fact since the repo rate rate was introduced there was only one time when the SARB ordered banks not to change the prime rate when it made a technical adjustment to the repo rate.

what would happen if they didn't change the prime rate (when rates are cut) is that they would lose the business from people who have borrowed money. and gain business from those with cash to invest.
 
What still gets me the moooeeer in is how the banks can up their prime rate the day after the MPC ups the repo rate, but tend to slack a couple of days when the repo is reduced..... :mad:
 
Goes back to my OP..if the rates are dropped on the 30th..it isn't certain that we will get the debit order relief on the 1st and may have to wait a month
 
Paulr said:
What still gets me the moooeeer in is how the banks can up their prime rate the day after the MPC ups the repo rate, but tend to slack a couple of days when the repo is reduced..... :mad:
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I think most of the times the banks are consistent in both directions. i've never seen the big 4 not enact the change within 2 business days after the announcement.

Lord Anubis said:
Goes back to my OP..if the rates are dropped on the 30th..it isn't certain that we will get the debit order relief on the 1st and may have to wait a month
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do you think that if the MPC had been say on the 27th and the banks made the cut effective on the 28th that you would get the relief for the whole month?
 
milomak said:
do you think that if the MPC had been say on the 27th and the banks made the cut effective on the 28th that you would get the relief for the whole month?
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that's what I've been trying to explain

the relief will only be for the day of the 28th, 29th and 30th
 
Eish, what I'm saying is that instead of the monthly debit order reflecting the 1% drop on the 1st of May people will probably have to wait for the debit order of the 1st of June. So don't factor into your budget the extra few bucks that you would have paid less just yet because in real debit order terms it may only be in effect from 1 June. Most banks have their preloaded debit order system in place before the end of the month and since the MPC meeting is on 30 April, its doubtful that the banks will pass on the 1% cut on the 1st of May....do you guys understand what I am saying....the one guy I spoke to said they might be able to do it though..

My post has nothing to do with daily interest calculations. For example. If you had a house of 1 Million and they cut the rates by 1%, your monthly debit order on your house would be ~R750 less than the previous month...

But because the drop will be on 30 April, the debit order adjustment down by R750 may not be in effect on the debit order run of 1 May but only on 1 June

FFS:)
 
...I give up...

at least we're all in agreement that the interest drops are great news :D
 
you seem not to be able to grasp the notion of pro-rata adjustments is what i am picking up
 
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