JOHANNESBURG – In the wake of the national disaster that South Africa finds itself in because of the coronavirus outbreak in the country and globally, all eyes were on South African Reserve Bank (SARB) governor Lesetja Kganyago as he announced today, the bank's latest decision on interest rates following the three-day meeting of the SARB's Monetary Policy Committee (MPC) which he chairs.
The struggling economy needed a boost by the MPC announcement to reignite growth as the country faces a tough few months ahead, as many economists expressed before the announcement.
Kganyago announced that the MPC decided that Sarb would be cutting interest rates by 100 basis points.
This takes the repo rate to 5.25% which will take effect from 20 March 2020, and the prime lending rate will now drop to 8.75%.
Kganyago said, "The implied path of policy rates over the forecast period generated by the Quarterly Projection Model indicated three repo rate cuts of 25 basis points each in the second and fourth quarter of 2020, as well as in the third quarter of 2021. Monetary policy can ease financial conditions and improve the resilience of households and firms to the short-term economic implications of Covid-19. Our decision and its magnitude seeks to do this in the near term."
"Monetary policy however cannot on its own improve the potential growth rate of the economy or reduce fiscal risks. Current economic conditions underscore the importance of implementing prudent macroeconomic policies and structural reforms that lower costs generally, and increase investment opportunities, potential growth and job creation," Kanyago added.
— SA Reserve Bank (@SAReserveBank) March 19, 2020
Ahead of the announcement by Sarb, Marinus said all eyes would be on the Monetary Policy Committee with the upcoming interest rate decision, following the recent actions by central banks in developed markets.
“The market is expecting a decline in interest rates, but the level of decline might just be a surprise.”
There is enormous pressure for the SARB to significantly cut interest rates today in a bid to shore-up the economy amid Covid-19 after a 25 basis points reduction to 6.25percent in January.
BNP Paribas senior economist Jeff Schultz said the co-ordinated global central bank action in the past week had opened the door to a bolder cut from the SARB.
“We expect a 50 basis points cut in the policy rate to 5.75percent, though we think a 75 basis points cut is also possible, depending on how large its growth downgrades are.
“While the growth and inflation outlook looks set to weaken, domestic fiscal risks also look set to rise. This is likely to keep the bank's rhetoric cautious. For now, we maintain our call for the policy rate to end 2020 at 5.5percent, though we acknowledge that the risks of a much larger recession than we forecast are building, prompting potentially deeper cuts in the second half.”
Statistics South Africa (StatsSA) said yesterday that the annual CPI nudged up by 0.1percentage point month-on-month, from 4.5percent in January to 4.6percent in February after increasing by only 0.3percent the previous month.
%%%twitter https://twitter.com/KganyagoLesetja?ref_src=twsrc%5Etfw">@KganyagoLesetjatalks about the likely impact this would have on domestic economic growth forecasts as a result of the expected supply chain disruptions. pic.twitter.com/u0oJuYsBOp
— SA Reserve Bank (@SAReserveBank)
The Bank now expects the economy to contract by 0.2% in 2020. GDP growth is expected to rise to 1.0% in 2021 and to 1.6% in 2022. pic.twitter.com/n6xT43d4sq
— SA Reserve Bank (@SAReserveBank) March 19, 2020
%%%twitter https://twitter.com/KganyagoLesetja?ref_src=twsrc%5Etfw">@KganyagoLesetjasays global risk sentiment has increased domestic risks. pic.twitter.com/kUIyTMVkho
— SA Reserve Bank (@SAReserveBank)