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Reserve Bank expected to cut repo rate

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The Reserve Bank is largely expected to cut the repo rate again this week. The bank’s Monetary Policy Committee (MPC) will conclude its three-day meeting on Thursday with an announcement on the interest rate.

Economists expect as large as a 100 basis points cut. The move could put money in the hands of struggling businesses and households to help stimulate the economy and boost consumer confidence.

Others expect a 50 basis points cut at this sitting and another 50 basis points cut later on in the year.

In its April statement, the Monetary Policy Committee said because of the lockdown extension. Both the supply and demand effects will reduce growth and deepen it in the short-term, as businesses remain shut for longer and households spend less. This was before the lockdown was extended further under level 4.

The Reserve Bank has also raised concerns about the impact of rising job losses on consumer demand.

The central bank will likely revise downwards its growth forecast for this year from the 6.1% contraction it predicted in April.

The bank has forecast inflation to an average 3.6% this year. It says the overall risks to the inflation outlook appear to be to the downside and the effects of the currency depreciation will likely be muted.

Lower international oil prices will likely continue to put a cap on petrol prices in the near term.

In its last MPC, the bank indicated that the implied path of policy rates over the forecast period generated by the Quarterly Projection Model indicates five repo rate cuts of 25 basis points extending into the first quarter of next year.

The bank has so far this year reduced the repo rate by 225 basis points.

 

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