Sarb cuts the repo rate

Rate has now been cut by 300 basis points in 2020 to mitigate economic impact of Covid-19 pandemic.
South African Reserve Bank (Sarb) governor, Lesetja Kganyago. Image: Moneyweb

South African Reserve Bank (Sarb) governor, Lesetja Kganyago, announced another 25-basis points repo rate cut on Thursday, taking the rate to a four-decade record low of 3.5% and the prime commercial lending rate to 7%.

The widely expected decision was made following the bank’s 3-day Monetary Policy Committee (MPC) meeting in Pretoria.

Read: Covid-19 to push SA savings to record low

The latest cut means that the repo rate has been slashed by 300 basis points or 3 percentage points this year, as the bank takes unprecedented monetary policy steps to help mitigate the economic fallout of the Covid-19 pandemic.

In April, amid the initial Covid-19 “hard lockdown” to curb the pandemic, Sarb called an emergency MPC meeting and slashed the repo rate by 100 basis points. At its last meeting in May, it cut the rate by a further 50 basis points.

“The Covid-19 outbreak has major health, social and economic impacts, presenting challenges in forecasting domestic and global economic activity. The compilation of accurate economic statistics will also remain severely challenged,” Kganyago said in his MPC address.

“Our second quarter estimate for output has been revised lower. The Bank currently expects GDP in 2020 to contract by 7.3%, compared to the 7.0% contraction forecast in May,” he said.

“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 rise further,” added Kganyago.

The governor noted that the easing of the lockdown “has supported growth in recent weeks” with activity indicators showing 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 3.7% in 2021 and by 2.8% in 2022,” he said.

Three members of Sarb’s MPC preferred a cut of 25 basis points and two preferred to keep rates on hold at the latest meeting, according to Kganyago.

This is an indication that the bank will be more cautious on further rate cut decisions going forward.

“The implied path of policy rates over the forecast period generated by the [Sarb] Quarterly Projection  Model indicates one repo rate cut of 25 basis points in the fourth quarter of 2020 [and] remaining unchanged in the first quarter of 2021,” said Kganyago.

Read: African central banks face end to cutting cycle at July meetings

“Monetary policy can ease financial conditions and improve the resilience of households and firms to the economic implications of Covid-19. In addition to continued easing of interest rates, the Sarb has relaxed regulatory requirements on banks and has taken important steps to ensure adequate liquidity in domestic markets. These actions are intended to free up more capital for lending by financial institutions to households and firms,” he added.

Kganyago reiterated that monetary policy on its own cannot improve South Africa’s potential growth rate or reduce fiscal risks.

“These should be addressed by implementing prudent macroeconomic policies and structural reforms that lower costs generally, and increase investment opportunities, potential growth and job creation. Such steps will enhance the effectiveness of monetary policy and its transmission to the broader economy,” he noted.

According to Moneyweb calculations, the latest 25 basis points rate cut will see homeowners with a R1 million existing 20-year home loan, reduce their bond payment by around R150 a month. This is based on a prime lending rate.

South Africa’s repo rate cuts totalling 300 basis points since the beginning of this year, effectively mean that such homeowners will now be saving around R1900 a month in bond payments.

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Lesetja for PRESIDENT !!!!!!!!!!!!!!!

You must have a boat load of debt. This is NOT GOOD NEWS.

….and its a reflection of a sick economy
Consumers have wised up….thriftiness has become the rule for middle income
Lastly, this type of stimulus only propagated saving in Japan and that economy is moribund as is Korea and now Europe
Sure, it will help pay off debt but it will not encourage spending

Its consumer spending the country needs and with explosive unemployment….RSA is a floating turd in the stream

Most welcome another 50 basis points by year-end would be appreciated.

Retirees disagree with you.

All savers….

When did they tell you that?

Only because actual investments in South Africa are dead thanks to the ANC, and of course the fund managers who keep charging to give you negative returns.

Boombang,as a retiree I’m telling you this is bad. Yields have diminished by 50% . The only ones who should feel glad are those with a shitload of debt.

Since everything is going south I suppose this is fitting (excluding debt).

Look at retail sales for the last quarter and tell me 25 basis points will make a difference. As a random person on the street what the repo rate is; most don’t know. Ask what prime is; same result.

You must save for your retirement, don’t expect my debts to fund your retirement with interest charged. How evil of you…

Bibab: dont waste time responding to Boombang : he is an EFF troll.

Thanks. Don’t want to waste energetic on a eff drol.

Well Boombang, you are effectively paying for my retirement. The financial institutions are using the interest you pay to pay me. See, that’s Capitalism.

Replying to this drol is awaste. i dont think he could articulate cause and effect.

Swings and roundabouts.

Fix the economy and get the ruling party to start thinking out of the box for solutions to this nation’s problems.

Good for those active in the economy but not so good for those retirees.

You win some you loose some.

Our economy sat on a wall.
Our economy had a great fall.
All king Cyril’s horses and all his men
Couldn’t put our economy together again.

All the good this man and his office does, is being constantly and increasingly undermined by Luthuli house. He must know this is a band aid on an axe wound but it is politically correct.

The RSA economy was structurally destroyed already and then came the lock down.

Likely 3m job losses and a negative GDP north of 15% this year and the unrest has not really started yet.

I am sure he must be aware that his job and his office are not safe.

Not due to his performance which has been exemplary under the conditions – but due to the catastrophic and ongoing mistakes being made at Luthuli house. When things get really bad, they will bulldoze their way through first the GEPF and then his office will be next …

I could not agree more. The Governor is doing his best and he is widely respected for what he does. Our Reserve Bank is free from political interference at the moment. The Governor is proudly independent and he protects this independence with all his might. For this, we owe him a lot of gratitude.

My concern is that no reserve bank is really insulated against the catastrophic acts of socialist governments. The repercussions of shortsighted and populist government policies will impact on the banking system at some stage, and then the governor is forced to act. When the economy deteriorates beyond a certain point, the Reserve Bank loses its independence. It is through this mechanism that the ANC will plunder the purchasing power of the currency. Lockdown measures will bring this situation forward by 10 years. This is the greatest risk we face as a nation. Poverty, AIDS, TB, inequality, unemployment and corruption is nothing compared to hyperinflation, because hyperinflation multiplies the effect of those problems by a factor of a thousand.

Base rate at 3,5% says everything about how ill the economy is. Demand driven inflation has evaporated with real estate prices collapsing. A GDP drop of 7,3% would be a welcome surprise-I fear 10% + based on the unemployment numbers and reductions in disposable income as well as the shattering of the tax base.

As a country we are in very, very serious difficulty

Now the plaster is firmly on the hemorrhoid. That should teach it.

Pity that we wont get much international investment now.

China is waiting for a bargain to buy SA.

The ANC thinks that’s a great idea. Of course, the people voting for the ANC have no clue that China will be their new colonial masters in a few years and it’s going to be a lot less nice than pre-1994.

Everyone wants to bargain buy SA.

People do not really understand what this means. Rates cuts incentivizes debt and spending. It de-incentivizes savings. It harms the return pensioners and other fixed-income earners have. It is not a good thing for the economy. It punished savers and rewards irresponsible spenders.

If I remember Economics 101 correctly (usually minimum 5 points for the definition) – “Economics is the science of studying that part of the human behaviour regarding the macro inter-related effects of production, management and provision or allocation of the limited resources to address the unlimited needs, wants and consumption requirements for goods and services within an economic system.”
Meaning inter-alia that an economy is based more on spending and acquiring than on savings or investment. Savings don’t build or grow an economy and don’t provide work (though it is good within a family). Sad but technically true.
The aim of the Reserve Bank is to make access to money (borrowing) cheaper (lower interest rates) so as to stimulate general spending on goods and services in order to kick-start the economy again (production of goods and services culminating in new jobs, employment and further spending). Trying to keep the machine churning.

What’s wrong with the machine when in some parts of the world inter-bank rates are negative.?

African – it means the machine is overheating, in dire need of an overall and running the very likely risk to eventually cease-up.

Savers are never punished, they always get what they put in, maybe a little more. It punishes the greedy and unreasonable, who invest through savings and expect to live off the interest of their savings… that is not gonna happen…. Actually it shows that we don’t understand the difference between saving and investing.

Well Boombang, I have have been living from interest income for the the past 15 years (since age 48 Ha Ha Ha). You are screwed if you are in debt!!

They cut the rate they moan they don’t cut the rate they moan….

Ever wondered why a loaf of bread, a litre of petrol and a unit of electricity can go up by around 6% but you get told inflation is 3%? Turns out they include markets in those calculations. So with the price of stocks right now, especially so in SA, we end up with inflation that isn’t a true representation of what the average Joe buys.

No, they don’t include the markets (stocks).

They can cut the rate to zero. It won’t rescue the economy. Personally, I’m done spending any money in SA, besides what I eat and drink.

I’ve read everyone’s comments and voted for 90% of them, there is a common trend here:

Everyone is extremely concerned about that the economy is not only uninvestable but also that they only thing growing here is inflation on basic products which has and will continue to deteriorate the consumer purchase power.

In a purchase power parity compared to the US, South Africans have lost about 12.5% purchase power since 2017.

This a very generalised look at things unfortunately the the stats point to a top heavy elite class with insuffienct support from the groups below, this is indicated by the average spending of citizens which is R75,570 a month this is the same figure which they use when Stats SA release inflationary stats. 3% inflation on a salary of R75,570 is not going to kill them however as you move down the income scale and the group of goods which they purchase.

SA Stats will not release this data because it is detrimental to the anc as the voters would instantly protest and vote for someone else.

Will lower interest rates really make a difference in an import driven economy? Will it not just take those, who cannot afford it, more into debt and by doing this, enforces the debt trap? With regards to low interest rate returns, Adapt or Die. If you are not happy with low interest returns, take on more risk! The provocative comments by some individuals on this article is typical of a divided SA. What a shame!

at least bank stocks will get cheaper

End of comments.

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