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.
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.
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.
He said "The implied path of policy rates over the forecast period generated by the Quarterly Projection Model indicated three repo rate cuts of 25 basis points each in the second and fourth quarter of 2020, as well as in the third quarter of 2021. Monetary policy can ease financial conditions and improve the resilience of households and firms to the short-term economic implications of Covid-19. Our decision and its magnitude seeks to do this in the near term."
"Monetary policy however cannot on its own improve the potential growth rate of the economy or reduce fiscal risks. Current economic conditions underscore the importance of implementing prudent macroeconomic policies and structural reforms that lower costs generally, and increase investment opportunities, potential growth and job creation," Kanyago added.