Reserve Bank Governor Lesetja Kganyago at the Reserve Bank head offices in Pretoria.Picture: FREDDY MAVUNDA
Reserve Bank Governor Lesetja Kganyago at the Reserve Bank head offices in Pretoria.Picture: FREDDY MAVUNDA

The SA Reserve Bank cut interest rates by 100 basis points as it dramatically revised the inflation and growth forecast, saying GDP for the whole of 2020 would contract 0.2%.

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 economies in recent weeks — including the European Central Bank (ECB)  and the US Federal Reserve — as the coronavirus continues to stalk its way around the globe bringing  in its wake, a likely world-wide recession. 

Along with the cut — which now brings the repo rate to 5.25% — the Bank cut its growth and inflation forecasts. Economists in a Bloomberg survey were expecting a 50 basis points cut.

The bank now forecasts GDP to contract for the whole of 2020 before rebounding to 1% and 1.6% the following two years. This is sharply down from its previous estimates of 1.2% in 2020, 1.6% in 2021 and 1.9% in 2022.

"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,"  Reserve Bank governor Lesetja Kganyago said.

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 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 2022.

Though the rate cut is likely to bring much-needed relief to consumers and businesses, there is scepticism that monetary policy alone can do much to buffer SA from the coronavirus-inspired crisis.

Though the government has promised a package of economic support measures, which it has yet to outline, there is limited room in the fiscus, which was already under pressure before the virus struck.

Clarification: An earlier version of this article was published in error while still in the editing process. 

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