Reserve Bank unexpectedly cuts repo rate by another huge 1% to 4.25%

Image for illustration. Photo by Adeolu Eletu on Unsplash

The Reserve Bank’s monetary policy committee has had a meeting much earlier than expected, where another big slash in rates was decided on.

Reserve Bank governor Lesetja Kganyago on Tuesday unexpectedly announced another rate cut of 100 basis points (1%), a huge move in the wake of the upheaval caused by the coronavirus pandemic.

Last month on March 19, they had also cut it by 1%.

The rate is now at 4.25% per annum, a lowering of 2% since the start of March. The prime rate has thus also dropped by 1%, to 7.75%.

The rand has weakened to historical lows during the coronavirus crisis.

Kganyago said in his briefing las month that the Covid-19 outbreak would hammer world markets to at least the middle of the year, or longer. He also said the low oil price would depress the global economy, while China’s growth – where the pandemic began – was being worryingly curtailed.

He said the spot price of brent crude oil was at $30 per barrel but was expected to bounce back to $40 a barrel, which was still well below previous expectations. The price is still hovering around $30.

Kganyago said that in SA, they expected disruptions to supply chains due to Covid-19 and a contraction of 0.2% in 2020, from a plus-0.4% forecast in January.

Kganyago said global monetary policy was likely to remain accommodative over the medium term.

The rand is, however, expected to strengthen over time. On Tuesday morning, the rand was at about R18 to the dollar, R23 to the pound and nearly R20 to the euro.

The bank has been under ongoing pressure to cut rates as a way to boost the economy.

In January, the repo rate was lowered from 6.5% to 6.25% following a unanimous vote by the Reserve Bank’s monetary policy committee.

It marked the first change to the repo rate since July last year, when it was cut by 25 basis points to 6.5%.

He said last month that they still expected GDP to grow by next year.

The repo rate is the central bank’s interest rate for lending money to other banks.

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