Economists optimistic of further repo rate cut
Economists predict that the South African Reserve Bank is likely to cut the repo rate further when its monetary policy committee concludes its meeting on Thursday.
Last month the central bank cut the repo rate by 100 basis points, bringing the repo rate down to 4.25%.
The prime lending rate now stands at 7.75%.
PwC Chief economist Lullu Krugel believes a 50 basis point cut is on the cards.
“I think there’s quite a reasonably good chance that the Reserve Bank will cut the repo rate again,” she says.
“They have told us after their previous emergency MPC meeting that they are of the opinion that there’s still 125 basis points of cuts that they can still introduce up until the middle of next year.”
Krugel says it might be the first time that interest rates are this low since the ‘90s.
“I must be honest not in recent times have we seen an economic shock like this.”
She adds: “If we look at times during the ‘90s for examples, we saw pretty big moves in the repo rate over short periods of time but not the kind of moves we are seeing at the moment in stimulating the economy.”
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Econometrix economist Azar Jammine shares these sentiments.
“The reason for this is that many analysts building to this expectation is that the inflation rate is likely to fall below 3% next month on the back of the dramatic fall in fuel prices in April and May,” says Jammine.
He remains optimistic but warns to leave some room for disappointment.
“According to a Statistics South Africa survey there has been an unexpectedly large amount of price increases in the last couple of months due to supply shortages due to the Covid-19 lockdowns internationally and locally.
“It’s highly likely that the Reserve Bank will reduce the repo rates tomorrow, but don’t be completely surprised if they don’t do so.”