The South African Reserve Bank (Sarb) has announced a further 25 basis points cut in the repurchase rate (repo rate) as the country’s economy struggles to recover from the coronavirus (Covid-19) impact. File Photo: IOL
The South African Reserve Bank (Sarb) has announced a further 25 basis points cut in the repurchase rate (repo rate) as the country’s economy struggles to recover from the coronavirus (Covid-19) impact. File Photo: IOL

Sarb governor says monetary policy cannot improve growth of economy on its own

By Siphelele Dludla Time of article published Jul 23, 2020

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JOHANNESBURG - The South African Reserve Bank (Sarb) has announced a further 25 basis points cut in the repurchase rate (repo rate) as the country’s economy struggles to recover from the coronavirus (Covid-19) impact.

Sarb Governor Lesetja Kganyago said the bank’s Monetary Policy Committee (MPC) had decided to cut the repo rate to 3.5 percent as consumer inflation dipped to a 16-year low of 2.1 percent in May from 3 percent in April.

Kganyago said three members of the MPC preferred a cut of 25 basis points and two preferred to keep rates on hold.

This rate cut would reduce prime lending rate to a further historic low of 7 percent.

The Sarb had already slashed the repo rate by 275 basis points to soften the effects of Covid-19.

Kganyago said the Covid-19 crisis has caused extreme volatility in financial asset prices with sharp and deep market sell-offs followed by a partial recovery.

He said that despite sustained higher levels of country financing risk, the economic contraction and slow recovery will keep inflation well below the midpoint of the target range for this year.

“Against this backdrop, the MPC decided to cut the repo rate by 25 basis points, taking it to 3.5 percent per annum, with effect from 24 July 2020,” Kganyago 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.”

Kganyago reiterated that monetary policy cannot on its own improve the potential growth rate of the economy or reduce fiscal risks.

He said that even as the lockdown is relaxed in coming months, for the year as a whole, investment, exports and imports were expected to decline sharply, adding that job losses were also expected to rise further.

Sarb’s headline consumer price inflation forecast averages 3.4 percent in 2020 and is marginally lower than previously forecast at 4.3 percent in 2021 and 2022.

BUSINESS REPORT

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