Reserve Bank took a cautious stance by cutting repo rate: Economist

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Economist Jeff Schultz says the Reserve Bank has taken a cautious stance by cutting the repo rate by 50 basis points.

The move has eased the repo rate to 3.7%. It also presents further relief for South Africa’s battered economy, most of which is still under lockdown.

Governor Lesetja Kganyago says the outlook for both inflation and food inflation remains favourable.

He says the economic contraction will keep inflation well below the mid-point target.

The bank has now forecast growth to contract at 7.1% this year.

Schultz says, “This decision underpins their caution and not going with a bigger cut today (Thursday).  I think they will remain data dependent. If we see more evidence of downside inflation, I think the central bank will continue to ease policy.”

 In the video below, Governor Lesetja Kganyago presents the Reserve Bank’s decision:

Director at Merchant Afrika, Lavan Gopaul, says the markets were anticipating a further reduction of the interest rate.

Gopaul says, “While the markets were anticipating a further reduction in the interest rate, they had expected a much larger increase today (Thursday). You saw the markets build on this price and keeping the rand trading at a much weaker level. Whilst the market digested that we might see a much smaller cut, you saw an immediate dash for currency and there was demand for the rand, dipping below that R18 to a dollar level. So all in all, we are seeing a stronger currency because the interest rate didn’t drop as much as the markets expected.”

In the video below is market reactions to the repo rate cut:

In the video below, Alexander Forbes’  Executive Chief Economist Isaah Mhlanga says further interest rate cuts are a relief for consumers: