Reserve Bank cuts repo rate

In a move that will bring some relief to consumers the South African Reserve Bank (SARB) cut its repo rate on Thursday to 6.5%

The step was largely expected, particularly in light of weak local economic growth which is expected to keep inflation in check as well as moves towards easing monetary policy globally.

It comes however at a time when the bank has been questioned over its approach to monetary policy — a debate that has been further clouded by calls for a change in the bank’s mandate as well as calls for its nationalisation.

In his statement following the banks monetary policy committee meeting, Reserve Bank governor Lesetja Kganyago again stressed the banks’ position that the “current challenges facing the economy are primarily structural in nature and cannot be resolved by monetary policy alone”. 

“Implementation of prudent macroeconomic policies together with structural reforms that raise potential growth and lower the cost structure of the economy remains urgent.,” Kganyago said.


The SARB again reduced its economic forecasts for 2019 to 0.6%, down from 1.0% in May.

Kganayago also warned that upside risks to the banks inflation outlook could be significant. “Global financial conditions can abruptly tighten due to small shifts in inflation outlooks in advanced economies and changing market sentiment.,” he said.

On the domestic front the financing needs of parastatals could place further upward pressure on the currency and long-term market interest rates for all borrowers, he said, adding that “food, electricity and water prices also remain important risks to the inflation outlook.

The psychological effect of the interest rate cut on consumer and business confidence will possibly be greater than its real effect on the economy said professor Raymond Parsons, economist at the North-West University Business School.

“Other costs, such as electricity tariffs, are in any case rising faster than borrowing costs have fallen. With the SARB having now yet again reduced its 2019 growth forecast, this time from 1% to 0.6%, there needs to be a further robust debate on what is the future appropriate monetary policy response in these economic circumstances.,” Parson said in a statement.

A cut of 50 basis points would have had more economic impact, but with a small level risk to inflation expectations said Parsons.

Nevertheless the SARB was right “to again warn that SA must not look to monetary policy to do the heavy lifting to turn the economy around”, he said.

Mamello Matikinca-Ngwenya, chief economist at FNB, said that muted inflationary pressure and weak growth, as well as the global tilt towards more accommodative monetary policy, has “provided room for easing monetary policy in South Africa”.

“While we believe there is scope for another rate cut, the bank will, however, need to assess fiscal risks before attempting to ease policy further,” she said. 



Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

Related stories

Further Reserve Bank repo rate cut unlikely this year

The central bank estimates that gross domestic product (GDP) to contract by 8.2% in 2020

The repo rate remains unchanged at 3.5%

Three members of the South African Reserve Bank’s Monetary Policy Committee(MPC) have decided to keep rates unchanged at 3.5%

Repo rate falls to 3.5% — its lowest since 1998

Repo rate drops to 3.5% as Reserve Bank predicts a 7.3% contraction in South Africa’s GDP

‘Don’t be afraid of fresh ideas’

The finance minister has found money for the Covid crisis, but the cupboard is bare and he warns that a fiscal crisis is possible in 2024

The demise of the chequebook

The use of cheques has fallen about 80% in the past decade as consumer habits shift and digital payments continue to gain traction

An emergency budget needs bold decisions, including a bigger public sector

Choosing this path would create work for many while also building the infrastructure that the country needs
Advertising

Subscribers only

Covid-19 surges in the Eastern Cape

With people queuing for services, no water, lax enforcement of mask rules and plenty of partying, the virus is flourishing once again, and a quarter of the growth is in the Eastern Cape

Ace prepares ANC branches for battle

ANC secretary general Ace Magashule is ignoring party policy on corruption-charged officials and taking his battle to branch level, where his ‘slate capture’ strategy is expected to leave Ramaphosa on the ropes

More top stories

Why no vaccine at all is better than a botched...

As Covid vaccines near the manufacturing stage, a look at two polio vaccines provides valuable historical insights

Under cover of Covid, Uganda targets LGBTQ+ shelter

Pandemic rules were used to justify a violent raid on a homeless shelter in Uganda, but a group of victims is pursuing a criminal case against the perpetrators

JJ Rawlings left an indelible mark on Ghana’s history

The air force pilot and former president used extreme measures, including a coup, enforced ‘discipline’ through executions, ‘disappearances’ and floggings, but reintroduced democracy

Sudan’s government gambles over fuel-subsidy cuts — and people pay...

Economists question the manner in which the transitional government partially cut fuel subsidies
Advertising

press releases

Loading latest Press Releases…