The cut in the repo rate lowers the rate at which commercial banks borrow from the SARB. This, in turn, influences a reduction in the interest rate set by commercial banks i.e. prime rate. Consequentially, interest rates charged by banks on financial instruments such as mortgage loans, vehicle finance etc, decrease, which in turn decreases monthly repayments on loans relating to assets owned by the business. Furthermore, the cost of borrowing also decreases, which affords businesses the opportunity to borrow at lower rates and thereby increase fixed capital investments. Increased fixed capital investment supports improved outputs and can, in turn, allow business owners to grow or sustain their business.
In short, it is cheaper for businesses to borrow from commercial banks, which promotes capital investment.