Steep cut in interest rates announced

The SA Reserve Bank’s monetary policy committee cut the repo rate by 100 basis points, or one percentage point, from 6.25% to 5.25% on Thursday.

Most economists were expecting a cut of 50 basis points.

The Reserve Bank is under pressure to help arrest the economy’s downward spiral. South Africa is already in recession, and the fall-out from business disruption due to the coronavirus crisis will be significant.

At least one analyst expects that the economy could shrink by more than 2% this year.

A rate cut could hurt the rand – lower interest dents its investment appeal – but SARB governor Lesetja Kganyago said the steep cuts in interest rate cuts in other economies have created space for the bank to address the rapidly deteriorating state of the South African economy. 

On Sunday, the US central bank cut its rates to close to 0%. Other banks have followed.

The Reserve Bank was also helped in its decision by a collapse in oil prices.

While consumer inflation reached the highest level in 15 months (4.6%) in February, Brent crude oil is now trading around $27 a barrel, from above $56 in February.

At this stage, it looks like petrol prices will come down by at least R1/litre in the first week of April, which should ease inflationary pressure on the local economy. 

Article courtesy of Fin24