SARB cuts repo rate by 100 basis points

Written by on 14th Apr 2020

In an effort to ease financial conditions in the wake of Covid-19, the South African Reserve Bank (sarb) has taken a unanimous decision to cut the repo rate by 100 basis points, with effect from 15 April 2020.

This was revealed by Governor Lesetja Kganyago on Tuesday morning.  The rate now stands at 4.25%. Kganyago said the uncertainties of Covid-19 have led to extremely high volatility in financial asset prices, with sharp market sell-offs followed by a partial recovery.

“At this stage, the sustainability of that recovery remains uncertain, and global markets remain in risk-off mode. This has implications for emerging markets and South Africa in
particular, as investor appetite for rand-denominated equities and bonds is expected to remain weak.”

Sarb expects GDP in 2020 to contract by 6.1%, compared to the -0.2% expected just three weeks ago. GDP is expected to grow by 2.2% in 2021 and by 2.7% in 2022.

This is the second 100bps cut in less than a month as the bank continues to make more capital available to households, however the governor was quick to state that the banks efforts alone will not be enough.

“Monetary policy however 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 that lower costs generally, and increase investment opportunities, potential growth and job creation.”

 


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