South Africa’s interest rate looks likely to be cut again in an effort to ease the burden on struggling consumers and businesses. The announcement will be made on Thursday 19 March when the Reserve Bank’s Monetary Policy Committee (MPC) concludes its bi-monthly meeting.
The country’s last interest-rate cut was in January 2020, when the MPC decided to set the repo rate at 6.25%, a reduction of 0.25% (25 basis points in finance-speak).
Successive rate cuts are relatively rare, but the government needs to pull every possible lever to stimulate a listless economy battling recession, the coronavirus impact and a number of other well-documented ailments.
Analysts split on how big the interest rate cut will be
All 21 analysts surveyed by Bloomberg have predicted a rate cut, although there is a 50-50 split on whether this will be a cut of 25 or 50 basis points.
Although inflation is up and fuel prices look likely to decline, at least in the short term, these factors are unlikely to deter the Reserve Bank from cutting the rate, given the recently declared national state of disaster and the decision by the US Federal Reserve at the weekend to again cut interest rates in the US.
Many central banks have cut their rates recently
“A deterioration in many countries’ growth prospects has resulted in multiple central banks cutting interest rates in recent weeks … Many countries have also resorted to other steps aimed at boosting liquidity in financial markets and the banking sector,” said PwC economists Lullu Krugel and Christie Viljoen.
“The South African Reserve Bank has previously commented that a 25 basis-point cut in the repo rate could lift GDP growth by 0.1 percentage points over a 12 to 18-month period. At this stage that increase in growth prospects will be very welcome.”
Investec chief economist Annabel Bishop said a 50 basic-point cut is “now seen as a possibility for SA interest rates”.
Some experts have also predicted further rate cuts as the year progresses. The Monetary Policy Committee meets every second month, with the next meeting scheduled for 19-21 May 2020.
Governments around the world are cutting interest rates in an effort to boost their virus-hit economies.
US slashed its interest rates to near-zero on Sunday
On Sunday 15 March, the US Federal Reserve again cut interest rates, this time by 1% to near zero. The key interest rate in the US is now zero to 0.25%, matching the record low level it hit during the 2008 financial crisis and where it was held until December 2015.
“The thing that fiscal policy, and really only fiscal policy can do, is reach out directly to affected industries, affected workers, and we’ve seen some of that so that’s an important job,” Fed chairperson Jerome Powell said.
“We do know that the virus will run its course and that the US economy will resume a normal level of activity. In the meantime, the Fed will continue to use our tools to support the flow of credit.”
Source: The South African Read More
