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South African Reserve Bank cuts repo rate

The South African Reserve Bank (SARB) has cut the repo rate by 25 basis points.

“The Monetary Policy Committee (MPC) has decided to cut the repo rate by 25 basis points, taking it to 3.50% per annum, with effect from 24 July 2020. Three members preferred a cut of 25 basis points and two preferred to keep rates on hold,” Governor of the South African Reserve Bank, Lesetja Kganyago, said on Thursday.

He said the implied path of policy rates over the forecast period, generated by the Quarterly Projection Model, indicates one repo rate cut of 25 basis points in the fourth quarter of 2020, remaining unchanged in the first quarter of 2021.

“Monetary policy can ease financial conditions and improve the resilience of households and firms to the economic implications of COVID-19.

“In addition to continued easing of interest rates, the SARB has relaxed regulatory requirements on banks and has taken important steps to ensure adequate liquidity in domestic markets. These actions are intended to free up more capital for lending by financial institutions to households and firms,” Kganyago said.

The Reserve Bank has revised its second quarter estimate for output.

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“The Bank currently expects Gross Domestic Product in 2020 to contract by 7.3%, compared to the 7.0% contraction forecast in May. Even as the lockdown is relaxed in coming months, for the year as a whole, investment, exports and imports are expected to decline sharply. Job losses are also expected to rise further,” Kganyago said.

He said the easing of the lockdown has supported growth in recent weeks and high frequency activity indicators show a pickup in spending from extremely low levels.

“However, getting back to pre-pandemic activity levels will take time. GDP is expected to grow by 3.7% in 2021 and by 2.8% in 2022,” Kganyago said.

He said the bank’s headline consumer price inflation forecast averages 3.4% in 2020 and is marginally lower than previously forecast, at 4.3%, in 2021 and 2022.

“The forecast for core inflation is lower at 3.3% in 2020, and remains broadly stable at 3.9% in 2021, and 4.1% in 2022,” Kganyago said.

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