Repo rate cut by further 50 basis points
The South African Reserve Bank has cut the repo rate by another 50 basis points amid the worsening economic outlook.
Governor Lesetja Kganyago made the announcement after the monetary policy committee concluded its meeting on Thursday.
This means the repo rate now sits at 3,75% and the prime lending rate at 7,25%.
“The MPC decided to cut the repo rate by 50 basis points. Three members preferred a cut of 50 basis points and two members a cut of 25 basis points,” Kganyago said.
“Despite sustained higher levels of country financing risks, the committee notes that the economic contraction and small recovery will keep inflation well-below the mid-point of the target ranch for this year.
“Barring inflation risks outlined earlier; inflation is expected is expected to be well-contained over the mid-term remaining close to the mid-point in 2021 and 2022.”
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Economists optimistic of further repo rate cut
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.
The changes are expected to take effect on Friday.
But Kganyago warned that monetary policy 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.”
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. GDP is expected to grow by 3.8% in 2021 and by 2.9% in 2022. #MPCStatement #MayMPC pic.twitter.com/6rtJ2qdntN
— SA Reserve Bank (@SAReserveBank) May 21, 2020