Higher rate cut on cards

[Fuma]

Johannesburg - South Africa sank into its first official recession in 17 years in the first quarter of 2009, with a massive 6.4% collapse in gross domestic product (GDP) fuelling hopes of another 100 basis points in interest rate cuts this week.

The plunge in GDP in the first quarter follows a fall of 1.8% in the fourth quarter of 2008. A recession is defined as two consecutive quarters of declining GDP. (All figures are quarter-on-quarter, seasonally adjusted and annualised growth rates, unless otherwise stated.)

Economists said though this was probably the worst it would get in SA, another quarter of negative real growth was quite possible. Some believed the Reserve Bank would have no choice but to cut interest rates aggressively this week. The bank has already sliced 350 basis points off interest rates as fighting recession has moved to its top priority, even as inflation remains sticky at high levels.

"This figure is a shock, although we knew that mining and manufacturing were in dire straits. This should button up the case for a further 100 basis-point interest rate cut this week, with more to come. It's a brutal picture," Nedbank economist Dennis Dykes said.

He pointed out that the sectors hardest hit - manufacturing and mining - were in synch with the global economy, and their recovery would depend on what happened internationally.

Sanlam Investment Management economist Arthur Kamp pointed out that, though mining and manufacturing were hardest hit with declines of 32.8% and 22.1% respectively, the recession was broad-based, with declines in output across a range of sectors. He believed that the first quarter would be the worst in the cycle.

Stanlib economist Kevin Lings said SA was in a "severe situation". He also noted the broad-based nature of the recession, as opposed to the fourth-quarter situation, which was dominated by manufacturing. He believed forecasters had underestimated the severity of the recession because they hadn't realised how broad-based it would be.

Lings said the terrible mining performance showed SA's exports had been particularly hard hit by the global recession. This had spilled over into domestic sectors, such as finance, where banking activity had slowed significantly. Lings expected a decline in GDP of 1.5% to 2% for the full year.

Link

 

[Rouxenator]

I hate when they use the term "basis points". It sounds like a lot when in fact it usually is like half a percent or if you are lucky 1 percent.

 

[Claymore]

I hate when they use the term "basis points". It sounds like a lot when in fact it usually is like half a percent or if you are lucky 1 percent.

The problem is that using "percent" is incorrect. If the rate is 10%, and it does down by 1%, the new rate is 9.9%, not 9%.

That's why they talk of "basis points" or "percentage points".

 

[Fazda]

Whatever way you look at it, 100 basis points is 1%

 

[Fazda]

You see???? The minute Trevor leaves the Office, they announce that we actually are in a recession despite the fact that he promised us that we were not!!

 

[Kokop]

More worried about GDP figures & inflation that the term "basis points"

I fear we are just starting to see the beginning locally.

 

[Rouxenator]

Whatever way you look at it, 100 basis points is 1%

OK, well they should refer to 0.01 KiloBasis Points then - it sounds a lot less - puts things into perspective.

You see???? The minute Trevor leaves the Office, they announce that we actually are in a recession despite the fact that he promised us that we were not!!

Ja well - thats the problem with our economy - it was in Manuel and not Otto.

 

[Claymore]

Whatever way you look at it, 100 basis points is 1%

Well, no. It's only that if the rate is 100%. 100 basis points is 1 percentage point.

 

[lsuacner]

"An increasing number of our members are under serious financial distress because of short-time, layoffs and retrenchments," the union memorandum said. "Their household debt is soaring. Their inability to pay off household debt will also translate into a burden on our financial system.

"At a social level, many of our members are suffering from depression, others are contemplating suicide, relationships are under strain, students and schoolchildren are dropping out of school because of lack of funds."

http://www.fin24.com/articles/default/display_article.aspx?Nav=ns&ArticleID=1518-25_2522949

..and the moment interest rates become too low people will lend money and where the NCA does not protect them they will be screwed.

Unions should not concern themselves with policy which does not fall under their juristiction.

 

[PeterCH]

http://www.fin24.com/articles/default/display_article.aspx?Nav=ns&ArticleID=1518-25_2522949

..and the moment interest rates become too low people will lend money and where the NCA does not protect them they will be screwed.

Unions should not concern themselves with policy which does not fall under their juristiction.

The SA worker is unproductive. Back in the 1600/1700s even the Dutch imported labour from Indonesia and subsequently the Brits imported Indian people to work the sugar cane fields. Later on Chinese migrants arrived in the 19th century.

The SA labour is not competitive by a long shot. SA only has GOLD and some tourism/wine going for it. The HIGH Gold price is keeping SA from doing much, worse.

 

[R13...]

WTF is our inflation still edging up?
Moronic greedy food retailers & the mathematically challenged motor industry

 

[sox63]

WTF is our inflation still edging up?
Moronic greedy food retailers & the mathematically challenged motor industry

Not just the food guys, you must remember there have been increases in other costs as well, like security, health, and the unions have been particularly busy lately, so the corporate world has to pass that on somewhere.

 

[FarligOpptreden]

The problem is that using "percent" is incorrect. If the rate is 10%, and it does down by 1%, the new rate is 9.9%, not 9%.

Is my mathematical sk1llz failing me or what? If the rate is 10% and you get a cut of 1%, Grade 0 maths would tell you that:
10% - 1% = 9%
...and
10% - 0.1% = 9.9%



...ok, while typing that out, I realized what you were implying. If the interest rate is 10% and it drops by 1%, it would drop by 1/100*10=0.1, so the new rate would indeed be 9.9%. I think they should refer to it as a "percentage point" or something. Would make a lot more sense...

 

[R13...]

Is my mathematical sk1llz failing me or what? If the rate is 10% and you get a cut of 1%, Grade 0 maths would tell you that:
10% - 1% = 9%
...and
10% - 0.1% = 9.9%



...ok, while typing that out, I realized what you were implying. If the interest rate is 10% and it drops by 1%, it would drop by 1/100*10=0.1, so the new rate would indeed be 9.9%. I think they should refer to it as a "percentage point" or something. Would make a lot more sense...

Maybe this will clear your confusion?

A basis point (often denoted as bp or ‱; rarely, permyriad) is a unit that is equal to 1/100th of a percentage point. It is frequently used to express percentage point changes of less than 1%. It avoids the ambiguity between relative and absolute discussions about rates. For example, a "1% increase" in a 10% interest rate could mean an increase from 10% to 10.1% (relative), or from 10% to 11% (absolute).

It is common practice in the financial industry to use basis points to denote a rate change in a financial instrument, or the difference (spread) between two interest rates. This is partially due to the large effect of small changes to financial instruments. The basis point is also used to calculate changes in equity indexes and the yield of a fixed-income security.

Since certain loans and bonds may commonly be quoted in relation to some index or underlying security, they will often be quoted as a spread over (or under) the index. For example, a loan that bears interest of 0.50% above LIBOR is said to be 50 basis points over LIBOR, which is commonly expressed as L+50bps or simply L+50.

Examples

A rate change from 5% to 6%, reflects a change of 1 percentage point or 100 basis points.

A rate change from 6.7% to 6.9% reflects a change of 0.2 of a percentage point or 20 basis points.

A rate change from 2.75% to 3.20% reflects a change of 0.45 of a percentage point or 45 basis points.

Another way to approach what a basis point is: It is 1/10,000 (1/100 x 1/100) or one percent of one percent.

from here

 

[marco79]

Is my mathematical sk1llz failing me or what? If the rate is 10% and you get a cut of 1%, Grade 0 maths would tell you that:
10% - 1% = 9%
...and
10% - 0.1% = 9.9%



...ok, while typing that out, I realized what you were implying. If the interest rate is 10% and it drops by 1%, it would drop by 1/100*10=0.1, so the new rate would indeed be 9.9%. I think they should refer to it as a "percentage point" or something. Would make a lot more sense...

This argument pops up every month!

 

[Blaze786]

Less than 200BPS is not a higher rate cut =/

We have been getting 100BPS for the past couple months.

So it should read "another 100bps rate cut"

 

[R13...]

It is another 100bps!

The South African Reserve Bank's (Sarb's) monetary policy committee (MPC) has cut the key repo rate by 100 basis points, bringing it down to 7.5%, with the prime lending rate dropping to 11%.

from here

 

[BBSA]

Comment from user Cosatu:

The whites are still controlling everything. We stormed the banks and nothing. Let's see what happens because they only decrease 1%!!! Watch out!

What where they thinking? Storm the bank and the MPC will cut 2%

And how is the whites in control of everything?

 

[undesign]

And how is the whites in control of everything?

Mental faculties maybe?

 

[Fuma]

What does that mean to my bond and car installment. Will the bank effect this decrease tomorrow? My debits are at the end of the month, so since the 31 is on Sunday, I wonder what will happen. Last time they debited my account on Sunday. I hope they effect the rate decrease tomorrow.