The Reserve Bank’s Monetary Policy Committee has decided to cut the repo rates by 25 basis points. This is the first interest rate cut by the Reserve Bank since March 2018.
Reserve Bank governor Lesetja Kganyago made the announcement in Pretoria on Thursday. He says the financing needs of state owned enterprises could have a negative impact on the Rand.
The committee has cited weak economic growth and inflation which has stayed around the midpoint of its target range.
Khanyago says that the monetary policy actions will continue to anchor inflation expectations near to midpoint of the inflation target range for balanced and sustainable growth.
The MPC unanimously decided to reduce the repurchase rate by 25 basis points to 6.5% per annum. pic.twitter.com/ygpuBHmu1y
— SA Reserve Bank (@SAReserveBank) July 18, 2019
Economists say while monetary policy is not a solution to long-term economic growth challenges, a cut in interest rates can provide short-term relief for strained South African businesses and consumers.
The weak economic performance as well as the depressed investor and consumer confidence levels remains a major concern. Consumer Price Inflation is in control and well within the Reserve Bank’s target bracket.
The May was CPI 4.5%, up from 4.4% in April.
In the previous sitting, the Reserve Bank revised downward economic growth forecast for 2019 from 1.3% to 1%.
PWC economist Lullu Krugel believes this will further be revised downwards. She says a resilient rand seen in recent weeks, supported by the US Federal Reserve and European Central Bank hinting at rate cuts, provides the Reserve Bank sufficient room to ease monetary policy.