Thebe Mabanga
The Reserve Bank cut the repo rate by 100 basis points, down from 6.25% to 5.25% in a unanimous decision by the Monetary Policy Committee, partly in response to the economic slowdown due to the outbreak of the novel Coronavirus.
This brings the repo rate to within 0.25% of its lowest levels since 2013.
Lesetja Kganyago, Reserve Bank Governor, said the bank now expects inflation to moderate, largely due to lower oil prices.
“Globally, a once-healthy economic growth outlook has been revised down sharply due to the outbreak and spread of Covid-19,” said Kganyago at a virtual press conference held in Pretoria.
“This coronavirus will negatively affect global and domestic economic growth through the first half of 2020, and potentially longer depending on steps taken to limit its spread.”
Domestically, Kganyago said the bank expects exports to be the hardest-hit sector.
“The domestic economic outlook remains fragile. At this point, Covid-19 is likely to result in weaker demand for exports and domestic goods and services, but its impact on the economy could be partly offset by lower oil prices.”
Kganyago said the bank also expect disruptions to supply chains and to normal business operations.
In a move that may be deemed optimistic, the bank now expects the economy to contract by 0.2% in 2020.
GDP growth is expected to rise to 1.0% in 2021 and to 1.6% in 2022.
The bank acknowledges that South Africa’s problem go beyond the coronavirus, and most notably include load shedding.
“Apart from the Covid-19 global pandemic, electricity supply constraints and other sources of uncertainty are expected to keep economic activity muted. Public sector investment has declined, and job creation has slowed,” the MPC said in a statement.
The bank’s inflation outlook remains benign.
Food inflation is expected to remain low because of improved weather.
The bank’ s headline consumer price inflation forecast averages 3.8% for 2020, 4.6% for 2021, and 4.4% in 2022.
The forecast for core inflation is lower at 3.9% in 2020, 4.3% in 2021, and 4.4% in 2022.
Kganyago was unflinching on the bloodbath that has befallen global markets.
“In financial markets, the sustained global bull market in equities and corporate bonds also ended dramatically last week, with extensive and deep repricing,” the statement read.
“Prices for emerging market sovereign debt and other risky assets also fell sharply.”
Kganyago pointed to steps taken by the United States Federal Reserve Bank to cut interest rate and inject liquidity into markets by pumping $1.5 trillion last week.
At question time with media and analysts, Kganyago and his deputies said the bank sees no need to take extraordinary measures at this stage, to either improve liquidity or support South Africa’s commercial banks.
They also had no plans to intervene to allow banks to help customers who may find themselves distressed, while bank’s reserve requirements and other regulatory instruments also remain unchanged.
The MPC will retain its meetings bi-monthly but can convene on an urgent basis or more frequently should the need arise.
