South Africans were surprised and for the most part delighted by the Reserve Bank's decision on Thursday to cut its interest rate for banks, known as the repo rate, by 50 basis points.

This was the first reduction in interest rates since November 2010.

FNB's property spokesman John Loos said he was surprised by the decision as he had only expected a possible interest rate cut in September.

He had some reservations about the appropriateness of the cut at the present time, although it could be a mildly positive stimulus for the residential property market.

"Interest rate policy should be used to address any macro-economic imbalances/excesses that may develop from time to time, and which can threaten price and macro-economic stability if allowed to go too far."

Consumers were too highly indebted, with debt-to-disposable income at 74.7 percent.

Interest rates should be at a level that encouraged debt to decline.

If the economy entered another cycle of hiked interest rates, consumers and the residential property market would experience financial pain.

FNB Home Loans spokesman Ewald Kellerman said households should use the lower rates to strengthen their balance sheets.

"This may mean trimming the debt levels and increasing the savings rate."

As many as 20 percent of sellers in the residential property market were downscaling due to financial pressure.

Kellerman said buyers should acquire property that was well within their means, in order to absorb a significant degree of future rate increases.

In addition, costs related to housing, such as rates, were escalating at a higher rate than consumer price inflation.

Business Unity South Africa (Busa) welcomed the decision to cut rates, as global growth was slowing and the Eurozone crisis continued.

"Busa believes the decision to lower interest rates will support an economic recovery," it said.

Busa's expectations for 2.7 percent growth for 2012 were in line with the Reserve Bank's forecasts, with inflation remaining at around five percent.

"The cut in interest rates sends an important market signal and should assist in boosting investment, consumption and business confidence," it said.

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