Interest rates cut to a historic low in SA
JOHANNESBURG - The South African Reserve Bank (Sarb) governor Lesetja Kganyago has announced the latest decision on interest rates for the country.
The decision follows the three-day meeting of the Sarb's Monetary Policy Committee (MPC) which Kganyago chairs.
Kganyago said that Sarb would be cutting the repo rate by 25 basis points, which takes the repo rate to 3.50% per annum.
Kganyago said, The MPC 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. 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.
Kganyago said that 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.
This means that the prime lending rate in South Africa will be adjusted to a historic 7%.
The decision by the Reserve Bank to cut the repo rate by a further 25 basis points to 3.50%, reducing prime and the base home loan rate to a further historic low of 7.0% is welcome relief for the property market and households, this is according to Samuel Seeff, chairman of the Seeff Property Group.
The decision was expected given that inflation dipped to a 16-year low of 2.1% for May (from 3% in April). With the overall inflation outlook for the year well within the bank’s target range of 3% to 6% and the Rand rebounding, we should be expecting more, Seeff said.
Earlier this year, in May, Kganyago, slashed the rate by 50 basis points, which took the repo rate to 3.75% per annum and the prime lending rate was adjusted to 7.25%.
Ahead of today's announcement, a survey of 16 analysts surveyed by Bloomberg expect the South African Reserve Bank to cut the repurchase rate by 25 basis points.
“We are expecting the Sarb to cut interest rates by another 25bps today in an effort to support the ailing economy, while the US will release initial jobless claims this afternoon,” Bianca Botes, executive director at Peregrine Treasury Solutions, says in an emailed note.
Governor @KganyagoLesetja says the crisis has caused extreme volatility in financial asset prices with sharp and deep market sell-offs followed by a partial recovery. #SARBMPCJUL20 pic.twitter.com/Xf5cw0GwEt— SA Reserve Bank (@SAReserveBank) July 23, 2020
Our second quarter estimate for output has been revised lower. The Bank currently expects GDP in 2020 to contract by 7.3%, compared to the 7.0% contraction forecast in May. GDP is expected to grow by 3.7% in 2021 and by 2.8% in 2022. #SARBMPCJUL20 pic.twitter.com/7aZG09JYgn— SA Reserve Bank (@SAReserveBank) July 23, 2020