Covid-19: South Africa Central Bank takes ‘U-Turn’ on interest rates

The economic fallout of the coronavirus pandemic has turned South Africa’s typically aggressive monetary policy committee into peacemakers.

The five-member panel, headed by Governor Lesetja Kganyago, has cut the nation’s benchmark interest rate by more than a third this year and is expected to ease policy further on Thursday in a bid to support an economy that could contract by as much 16.1% due to the virus and restrictions to curb its spread.

Another reduction in the rate would be “quite a U-turn” in the stance of a committee that often cited concerns about a weak currency and its possible secondary impact on inflation as barriers to easing, said Elize Kruger, an independent economist. The rand has lost almost a quarter of its value against the dollar this year.

“There is definitely a difference in the way they look at the current set of circumstances,” she said. “It has completely changed the approach. And rightly so, because if we’re not going to try and save this economy, what will we have left over?”

Less than a month after its biggest cut in more than a decade, the central bank reduced the repurchase rate by another 100 basis points to 4.25% at an unscheduled meeting in April. That’s the lowest since the rate was introduced in 1998 and marked the first time since the global financial crisis that the MPC moved lower at three consecutive meetings.

All but one of the 20 economists in a Bloomberg survey predict another cut Thursday, and the median estimate is 50 basis points of easing.

While the MPC has a track record of being cautious when easing and has repeatedly said that monetary policy alone can’t help an economy that slumped into a recession even before the virus was detected in South Africa, all five members of the panel voted to cut the key rate at every one of its meetings this year.

Source: Bloomberg

the authorAV1 NEWS

Leave a Reply