SA Reserve Bank cuts interest rates to 5.25%

Amid Coronavirus (Covid-19) crisis, SA Reserve Bank Governor Lesetja Kganyago today announced the decision to cut the interest rate to 5.25%.

Amid disruptions due to the Coronavirus (Covid-19) crisis, the South African Reserve Bank (SARB) has cut interest rates by 100 basis points, from 6.25% to 5.25%, Governor Lesetja Kganyago announced on Thursday.

The Monetary Policy Committee (MPC) voted to lower the repurchase rate to 5.25% from 6.25%. The decision by the five MPC members was unanimous.

The Reserve Bank is under pressure to help arrest the economy’s downward spiral. South Africa is already in recession, and the fall-out from business disruption due to the coronavirus crisis will be significant.

At least one analyst expects that the economy could shrink by more than 2% this year.

A rate cut could hurt the rand – lower interest dents its investment appeal – but SARB governor Lesetja Kganyago said the steep cuts in interest rate cuts in other economies have created space for the bank to address the rapidly deteriorating state of the South African economy.

On Sunday, the US central bank cut its rates to close to 0%. Other banks have followed.

The Reserve Bank was also helped in its decision by a collapse in oil prices.

While consumer inflation reached the highest level in 15 months (4.6%) in February, Brent crude oil is now trading around $27 a barrel, from above $56 in February.

At this stage, it looks like petrol prices will come down by at least R1/litre in the first week of April, which should ease inflationary pressure on the local economy.

The MPC now projects the economy to contract by 0.2% this year compared with an forecast of 1.2% growth given in January.