Economists say the Reserve Bank‘s rate cut will provide a temporary reprieve to consumers and the economy as the coronavirus continues to spread around the world.
On Thursday, the bank’s Monetary Policy Committee (MPC) took a unanimous decision to cut the repo rate by a full percentage point to curb the impact of the current recessionary environment. This is aimed at making it easier for banks to lend money to businesses facing a steep and sudden drop in revenue as the virus forces them to curtail their activity or shut down.
Financial markets have plunged in recent weeks as investors fixated on potential costs of the coronavirus outbreak.
The MPC decided to cut the repo rate by 100 basis points. This takes the repo rate to 5.25% per annum, with effect from 20 March 2020. The decision was unanimous. https://t.co/MYrjRdPxhx
— SA Reserve Bank (@SAReserveBank) March 19, 2020
Below is the full MPC statement:
To view the full MPC statement, click here https://t.co/fcsGUlqFmw
— SA Reserve Bank (@SAReserveBank) March 19, 2020
The bank says it expects the economy to contract by point two of a percent this year and recover to one percent growth next year.
The Bank now expects the economy to contract by 0.2% in 2020. GDP growth is expected to rise to 1.0% in 2021 and to 1.6% in 2022. pic.twitter.com/n6xT43d4sq
— SA Reserve Bank (@SAReserveBank) March 19, 2020
Economic expert Jeff Schultz says the cut will not provide a substantial support for the struggling economy.
“It can help to cushion some of the blow to the economy, for every 25 bps that the SARB delivers it adds about 0.1% to the economy – we are not talking about a game-changer for growth this year but over the next 12-months it could add up to half a percentage point to GDP, is not massive but also not insignificant. We do think this is a step in the right direction, but to create more job we need the global economy to be fairing much better which for the next six months looks unlikely.”
Governor @KganyagoLesetja speaks about the effect of Covid-19 on the global and domestic economy. pic.twitter.com/wq2N5TSUDv
— SA Reserve Bank (@SAReserveBank) March 19, 2020
Minister of Finance Tito Mboweni says he is in talks with Kganyago in a bid to find ways to mitigate the effects of the pandemic.
“I know some of you think that you can solve the world’s problems by reducing the interest rates, you’re wrong, but the SARB knows its responsibility in times of a pandemic, so don’t over pressurise them, leave the conversation to me and the Governor of the SARB; it is taking place so don’t worry about that.”
With many other countries across the globe holding emergency meetings over repo rates Mboweni assures the country not to worry about the reduction of interest rates in the midst of the impact of the coronavirus outbreak on global growth.
In the videos below, SABC News analyses the Reserve Bank’s decision to cut the repo rate:
