Sarb governor Lesetja Kganyago said despite sustained higher levels of country financing risk, economic contraction and slow recovery would keep inflation well below the midpoint of the target range for this year. Photo: African News Agency (ANA) Archives
Sarb governor Lesetja Kganyago said despite sustained higher levels of country financing risk, economic contraction and slow recovery would keep inflation well below the midpoint of the target range for this year. Photo: African News Agency (ANA) Archives

More capital for households as SA Reserve Bank relaxes monetary policy

By Siphelele Dludla Time of article published May 21, 2020

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JOHANNESBURG – The SA Reserve Bank (Sarb) has slashed interest rates further by 50 basis points to 3.75 percent as the central bank relaxes monetary policy to free up more capital for households impacted by the coronavirus (Covid-19) pandemic.

This is the fourth interest rate cut this year as the Sarb tries to provide financial relief for households distressed by the economic downturn.

Sarb governor Lesetja Kganyago said despite sustained higher levels of country financing risk, economic contraction and slow recovery would keep inflation well below the midpoint of the target range for this year.

Kganyago said the overall risks to the inflation outlook at this time appear to be to the downside, but less clearly so compared to conditions in March and April.

The bank’s headline consumer price inflation forecast averaged 3.4 percent for 2020, and 4.4 percent in 2021 and 2022. 

“Against this backdrop, the Monetary Policy Committee decided to cut the repo rate by 50 basis points, taking it to 3.75 percent per annum, with effect from 22 May 2020,” Kganyago said.

“Three members preferred a cut of 50 basis points and two preferred a cut of 25 basis points.”

The Covid-19 outbreak has major health, social and economic impacts, presenting challenges in forecasting domestic economic activity 

Kganyago said monetary policy can ease financial conditions and improve the resilience of households and firms to the economic implications of Covid-19. 

“Monetary policy however cannot on its own improve the potential growth rate of the economy or reduce fiscal risks. 

“These should be addressed by implementing prudent macroeconomic policies and structural reforms that lower costs generally, and increase investment opportunities, potential growth and job creation.”

Kganyago said the easing of the lockdown will support growth in the near term and some high frequency activity indicators show a pickup in spending from extremely low levels

The Sarb currently expects gross domestic product (GDP) in 2020 to contract by 7 percent, compared to the 6.1 percent contraction forecast in April.

The GDP is expected to grow by 3.8 percent in 2021 and by 2.9 percent in 2022. 

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