The South African Reserve Bank announced this morning [April 14] that it has cut the repo rate by 100 basis points, or one percentage point, bringing it to 4.25%. The reduction will be effective tomorrow.

The repo rate is the rate at which the central bank lends money to commercial banks.

Last month, the bank cut the rate by 1% too. The decision to cut it again comes in response to the impact the coronavirus has had on the country’s economy.

Lesetja Kganyago, Governor of the South African Reserve Bank said in a statement this morning that the impact of the virus is being felt through all economies.

“The Covid-19 outbreak will have a major health and social impact, and forecasting domestic economic activity presents unprecedented uncertainty. With that in mind, the Bank 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,” he said.

“South Africa’s lockdown has been extended by an additional 14 days, bringing the total lockdown period to 35 days. Both the supply and demand effects of this extension reduce growth and deepen it in the short-term, as businesses stay shut for longer and households with income spend less. This will likely also increase job losses, with further consequences for aggregate demand. The impacts will be particularly severe for small businesses, and individuals with earnings in the informal sector,” he added.

Kganyago said that “the faster the global economy recovers from the crisis, as China appears to be gradually doing now, the more positive growth spillovers will strengthen for South Africa.”

However, the rand is still under pressure. “The rand has depreciated by 22.6% against the USD since January and by 17.3% since the March meeting of the MPC. The implied starting point for the rand forecast is R17.80 to the US dollar, compared with R15.40 at the time of the previous meeting,” said Kganyago.

Picture: Twitter / SAgovnews


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