Central bank cuts repo rate by another 25 basis points

Central bank cuts repo rate by another 25 basis points

The South African Reserve Bank has cut the repo rate by another 25 basis points amid the worsening economic outlook.

SARB governor Lesetja Kganyago

Governor Lesetja Kganyago made the announcement after the monetary policy committee concluded its meeting on Thursday.

This means the repo rate now sits at 3.5% and the prime lending rate at 7%.

“Against this backdrop, the MPC decided to cut the repo rate by 25 basis points, taking it to 3.50% per annum, with effect from 24 July 2020. Three members preferred a cut of 25 basis points and two preferred to keep rates on hold,” said Kganyago.

The central bank has made several other cuts in previous months, including a 50 basis point cut in May, 100 basis point cuts in March and April, and another 25 basis point cut in January.

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“Easing of the lockdown has supported growth in recent weeks and high-frequency activity indicators show a pickup in spending from extremely low levels,” Kganyago said.

"However, getting back to pre-pandemic activity levels will take time. GDP is expected to grow by 3.7% in 2021 and by 2.8% in 2022.”

Kganyago further reiterates that monetary policy alone can not ease the burden on the country’s pocket.

He added that a sharp decline in imports and exports can still be expected, even as the lockdown restrictions are eased. 

“Our second-quarter estimate for output has been revised lower. The Bank currently expects GDP in 2020 to contract by 7.3%, compared to the 7.0% contraction forecast in May.

“Even as the lockdown is relaxed in the coming months, for the year as a whole, investment, exports and imports are expected to decline sharply. Job losses are also expected to rise further.”

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