A consumer economist at Liberty, Tendani Mantshimuli, says the Reserve Bank could have cut today’s repo rate more aggressively than the 25 basis points announced to counter the crippling effects of the COVID-19 pandemic.
The repo rate is now at a four-decade record low of 3.5% and the prime commercial lending rate is at 7%. The latest cut means that the repo rate has been slashed by 300 basis points or 3 percentage points this year.
Mantshimuli says this was a widely expected decision.
“We should not look at the bank as the sole stimulus to the economy. There needs to be some structural changes to the economy. But the rate cut is not a surprise, it is good news for those indebted consumers but in terms of re-extinguishing the economy going forward, it’s not going to do that much. If they were to be aggressive, they could have gone for another 50 basis points. We have room for another 25 to 50 basis points.”
Making the announcement in an online media briefing, Governor Lesetja Kganyago said the bank’s Monetary Policy Committee noted the severity of the economic contraction and the slow recovery that will keep inflation well below the midpoint of the 3 to 6% target range this year.
Old Mutual Investment Group, Economist Johan Els, says there is room to cut by another one hundred basis points this year to try and counter the effects of the economic contraction due to COVID-19.
“ I think there’s room in this economy where we sit now if there’s forecast because there are unprecedented circumstances we’d rather focus on current inflation rather than future inflation. They could have lowered by another 100 basis points. I think there’s room for another 150 in total because these are stressful times and unprecedented circumstances regarding the weakness of growth but also the downside risk in terms of inflation.”
The repo rate is expected to boost households as SA continues to battle coronavirus:
