South Africans and businesses across the country are looking forward to the beginning of June when lockdown regulations are eased.
While the threat of Covid-19 remains, the eased regulations will hopefully bring about a much-needed cash flow injection to businesses, as well as allowing people to return to their jobs and earn salaries.
We here at The Beancounter remain hard at work to help you best manage this uncertain time, and prepare this weekly mailer to ensure that you are informed about anything that might affect you and your business during this time.
Here is what small businesses should take note of this week:
Another repo rate cut – what does this mean?
The South African Reserve Bank (SARB) on 21 May 2020 announced that the repo rate will be cut by an additional 50 per cent basis points to 3.75%, after it was cut by 100 basis points in April.
This marks the fourth interest rate cut this year, bringing the interest rate to levels last seen in the 1970s, as the SARB aims to provide financial relief for households distressed by the economic downturn caused by the national lockdown and Covid-19 pandemic.
The repo rate is the standard interest rate at which the SARB lends money to other banks. When the repo rate is cut, it cascades down to banks as they, in response, adjust the interest rates they charge for lending money to their clients.
This also reduces the interest banks payout on savings and money market accounts.
We explore a few advantages and disadvantages that a repo rate cut has on business owners:
Advantages:
a) If you are paying off debt, such as a home loan or personal loan, and are already cash-strapped, then a lower interest rate may help to reduce your repayments if you have a loan with a variable interest rate. This is because the interest charged on loans would’ve declined.
b) A low-interest-rate would mean that the interest on loans would likely be lower, and therefore require lower repayments. This would help anyone looking to take out a new loan, whether it be to improve liquidity in a business, or for investment purposes such as buying a home.
Disadvantages:
a) For someone living off of savings, possibly because they have lost their job due to the lockdown, or is a pensioner, then an interest rate cut would not be welcomed as it would directly affect the interest added onto their savings. Unless the money was invested under a fixed interest rate, which is usually not the norm.
b) A lower interest rate will make it even less attractive for foreign investors in South Africa, who have savings in the country, to invest in the country or keep their money here as they can expect lower returns.
Taking the above into consideration, these cuts to the interest rate remain largely insignificant when considering South Africa’s larger economic environment. While an interest rate cut may help consumers save a bit of money, it will unlikely inspire consumers to borrow more money to spend and help stimulate economic growth as long as uncertainty remains.
Unregistered workers can now also claim UIF
As the long awaited May applications for the Unemployment Insurance Fund (UIF) TERS benefit are now open, the UIF announced that employees who were previously not registered with the state entity can now also claim.
This would enable all workers who were put on leave, were laid off temporarily, or whose employers could no longer afford to pay their full salaries due to the coronavirus crisis are entitled to the UIF payouts, regardless if they were previously registered.
The maximum payout a worker will receive is R6,730 a month (if they typically earned more than R17,700) – while the minimum amount is R3,500.
The Beancounter clients: The UIF TERS applications for May are now open and we are busy processing your May claims to ensure swift payouts. Please contact your account manager if you have any questions or concerns.
Until next week…
It’s been nearly ten weeks since the national lockdown was announced, and our lives changed permanently as many businesses adapted operations to the new reality.
We understand that it is an uncertain time for many, and The Beancounter remains hard at work to help you adjust, and survive and thrive post-Covid-19.
As always, never hesitate to contact us with any questions or concerns. We are always here working with you to make sure we make it through this unprecedented time.