Repo rate cut by 50bps

Relaxing rates further in face of Covid-19 economic fallout.
South African Reserve Bank Governor, Lesetja Kganyago. Image: Moneyweb

The South African Reserve Bank (Sarb) cut its repo rate by another 50 basis points to 3.75% on Thursday, taking the prime commercial lending rate to 7.25%.

Sarb governor Lesetja Kganyago announced the decision following the bank’s three-day Monetary Policy Committee (MPC) meeting in Pretoria.

This takes the bank’s total repo rate cuts this year to 275 basis points or 2.75%, as it slashes rates in the face of Covid-19 economic fallout. The latest MPC meeting follows the bank calling an emergency MPC in April, where it announced a surprise 100-basis point cut.

During his MPC speech on Thursday, Kganyago noted that since the April MPC meeting, the Covid-19 pandemic continued to spread globally, with wide-ranging and deep social and economic effects.

“Economic contractions are expected to be deepest in the second quarter of 2020, with gradual recoveries in the third and fourth quarters of the year,” he said.

“The Covid-19 outbreak has major health, social and economic impacts, presenting challenges in forecasting domestic economic activity. The compilation of accurate economic statistics will also remain severely challenged,” he added

Kganyago said the bank now expects South Africa’s GDP in 2020 to contract by 7%, compared with the 6.1% contraction forecast in April.

“Even as the lockdown is relaxed in coming months, for the year as a whole, investment, exports and imports are expected to decline sharply. Job losses are also expected to be widespread,” he noted, however, he did not give a specific forecast on anticipated job cuts.

“Easing of the lockdown will support growth in the near term and some high frequency activity indicators show a pickup in spending from extremely low levels. However, getting back to pre-pandemic activity levels will take time. GDP is expected to grow by 3.8% in 2021 and by 2.9% in 2022,” Kganyago added.

On the inflation outlook, he said Sarb’s headline consumer price inflation forecast averages 3.4% for 2020 and 4.4% in 2021 and 2022. The forecast for core inflation is lower at 3.5% in 2020, 3.8% in 2021, and 4.1% in 2022.

“The overall risks to the inflation outlook at this time appear to be to the downside…. Global producer price and food inflation appear to have bottomed out. Oil prices remain low but have recovered somewhat. Local food price inflation is also expected to remain contained,” he pointed out.

“Risks to inflation from currency depreciation are expected to stay muted while pass-through remains slow. However, electricity and other administered prices remain a concern. Upside risks to inflation could also emerge from heightened fiscal risks and sharp reductions in the supply of goods and services,” Kganyago said.

He added that SA’s economic contraction and slow recovery will keep inflation well below the midpoint of the bank’s target range for this year.

He said the bank’s monetary policy quarterly projection model indicates two further repo rate cuts of 25 basis points in the next two quarters of 2020.

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Well done Lesetja – that is how I got to know you for so many years!

The Rand is a sign that you are still doing the right theing, depitae the lower yield that ”carry traders” will receive!

Whilst this is a step in the right direction, I fear more is needed. The Gov also needs to open up quicker.

fantastic! good decision!

Who is this good for and how will it benefit anyone?

Easy to announce a rate cut hey; say it and it is so.

Now please announce that GDP growth for 2021 will be 3.8%; when hell freezes over.

Inflation and the pninting of money to come – say goodbye to the Rand as you know it.

We are deflating right now. QE is not projected.

Worst move possible, hello inflation.

Agree and suffer all those that make an honest attempt to save monthly and of course pensioners. They should rather target inflation and the thieves in government

Inflation figures are skewed to begin with.
Inflation is actually higher than stated….

Brilliant! This should have been done last year already. The country needs a kickstart of growth. Investors don’t want to invest in the economy if they can get a guaranteed 10% plus return in the bank. Balsy and well thought out move! Confidence will come with growth.

Growth will only come from an about-turn in economic policy, away from socialist policies towards free-market policies. Considering the impotence of our lame-duck president, growth won’t come and confidence will wane further. No rate cut can mitigate the disaster in Luthuli House.

“Expropriation without compensation” is still very much part of the equation. Until that is killed permanently, all the rate cuts in the world won’t mean nothing.

When does this whining about Retirement Savings end? Is this not the game we played? Did your adviser not explain everything to you?

What’s happening to u is due to a lack of flexibility, innovation & diversity in your approach.

These cuts a necessary for the greater good. What you should be doing is lining yourself for what was deemed aggressive while your passive is stagnant. I always say a Financial Planner/Advisor is not a God. You pay them to tell u what u already know. “risk”

Always have a back up plan for your back up plan!

So you are quite happy condemning a sizable number of people to a life of poverty from which they have little to no resources to recover from. Most of these people for the most part lived a prudent lifestyle to enable the accumulation of some modest retirement savings. Now you are advocating throwing these people into the gutter without any support.

I think “poverty” is a strong word with all due respect, people that could afford to save for retirement are not poor and i do not think they would have experienced poverty before or at least during their working years.

If you would like to see true poverty, take a drive through our townships or the cape flats.

Pensioners will have to most likely revise their monthly budget and live a bit tighter which is unfortunate.

Just because a person has not experienced poverty before is no reason that they should be forced into that situation in the future. To reason as such indicates a degree of callousness or revenge seeking.
Pensioners in general have been practicing belt tightening for years due to the fixed nature of many pensions and if increased are granted at all they lag behind general inflation.
Where the belt tightening needs to begin in this country is the excesses in government, particularly at a local government level.

Why was my response to the above post denied?

I think this is good, getting better from yesterday. If it continues like this we’ll be back to 14.00 by next week. I’m hoping for R10

…come back and update us when you have removed your head from your rear end

Somebody needs to explain to me how it makes sense to have a repo rate of 3.75% but people can buy five year fixed 10% SA Retail Bonds? There must be a scheme developing that private company borrows tax deductible at 7% and shareholders invest at 10% of which a portion is exempt

printing of money? is this not a change? inflation? Independence?

Very clever move,where will people find attractive yields and guavament addisional funds? RSA retail bonds off course

End of comments.

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