South Africa Reserve Bank (SARB): South Africa finds itself in National disaster because of the Covid 19 outbreak in the country and globally, all eyes were on South African Reserve Bank (SARB). Governor Lesetja Kganyago as he announced, the bank’s latest decision on interest rates.
The bank decided to ease policy even after a recent sell-off in markets that pushed the rand to new lows of worse than R17/$ and 10 year bond yields to double digits.
The bank now joins its peers in several countries who have injected various forms of monetary policy support into their their economies in recent weeks – including the European Central Bank (ECB) and US federal Reserve – as the Covid 19 continues to stalk its way around the globe bringing in its wake a likely worldwide recession.
The bank has cut the interest rate by 100 basis points. This is the first time since 2012 that the interest rate is cut by over 50 basis points. The Repo rate will be at 5.25% while Prime lending Rate moves to 8.75%.
In simple terms, this means you will be paying less interest on debts such as home loans, motor vehicle finance, credit card and others.
“Despite the general rise in risk, the significantly lower forecast for headline inflation has created space for monetary policy to respond to the rapid deterioration in economic conditions” said Lesetja Kganyago.
The bank sees inflation averaging 3.8% in 2020, way below the mid point of its 3% to 6% target range. Inflation will then accelerate to an average of 4.6% in 2021, before slowing to 4.4% in 2022. At its January meeting, where it cut rates by 25 basis points, it saw inflation averaging 4.7% for 2020, 4.6% for 2021 and 4.5% for 2020.
Though the government has promised a package of economic support measures, which are yet to be outlined – there is limited room in the fiscus which was already under pressure before the virus struck.