Tag: repo rate

By Lameez Omarjee for Fin24

Interest rates may drop further this week to levels close to those last seen in the 1970s as the Reserve Bank seeks to bolster South Africa’s ailing economy.

Economists expect a cut in borrowing costs of between 25-basis and 50 basis points this Thursday following a meeting of the bank’s monetary policy committee.

SA’s economy, which already slipped into a recession at the end of 2019, could contract by double digits this year due to the sudden halt in economy activity brought about by the nationwide lockdown to stem the spread of the coronavirus.

The Reserve Bank has already joined the world’s leading central banks in aggressively cutting interest rates and increasing bond purchases in an attempt to shore up liquidity. The Lesetja Kganyago-led bank has cut interest rates by 225 basis points so far this year, having slashed rates by 100 bps at each of the previous two meetings, taking the repurchase rate to 4.25%, its lowest level since 1973. During April it bought R11.4 billion worth of government bonds and relaxed regulations to allow banks to loan more.

A cut of 25 basis points, or 0.25% on Thursday would take SA’s repo rate to 4%, while a cut of 50 basis points would mean a rate of 3.75%. The repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks.

But to bring SA’s interest rate down to 3.14% – last seen in October 1973 as a response to the oil crisis and slowing global growth at the time – it would take a cut bigger than 100 basis points, notes economist Mike Schüssler.

Co-ordination

Central bankers have acted in a coordinated manner in their response to the current economic crisis, following a similar course to that adopted after the 2008 global recession. The extra liquidity has served to shore up up global stock markets, with the JSE All Share some 2% firmer over the past month, and the rand managing to make some gains against the US dollar.

Kganyago has previously said that the bank would use its monetary policy tools appropriately, and within the bank’s mandate, to support SA’s economy.

Deputy Finance Minister David Masondo made waves in early May when he suggested at an ANC discussion the Reserve Bank could do more to help fund Covid-19 interventions and bolster the economy for growth by directly buying government bonds.

The Reserve Bank currently buys bonds from the secondary market, and says it only does so to remedy any market dysfunction.

The Bureau of Economic Research, in a market update, said the central bank may comment further on its bond-buying activities at this week’s MPC statement. “The bank stepped up its purchases of government bonds in April, but the MPC has so far stressed this should not be seen as quantitative easing but merely to ensure a well-functioning market,” the note read.

The BER expects a rate cut of 50 basis points on Thursday. Inflation is likely hovering near the lower end of the bank’s 3% to 6% target band, it said. At the last MPC meeting the Reserve Bank estimated it would tick in to 3.6% for April.

While the central has predicted the domestic economy will likely contract by 6.1% this year, Treasury has projected a contraction of up to 16.1% in a worse-case scenario under a protracted lockdown. Under this scenario, the employment rate would be pushed to over 50%.

Shallow rate cut

Standard Chartered expects a rate cut of 50 basis points on Thursday, bringing the repo rate to 3.75%, and a further cut of 25 basis points at the July meeting, said Razia Khan, the bank’s chief economist for Africa and the Middle East. Standard Chartered also revised its GDP outlook to a contraction of 6.5%.

Khan noted that most of the country would shift from lockdown level 4 to level 3 near the end of the month, but expects a slow recovery in economic activity in metropolitan areas, including Cape Town, which are the “epicentres” of the outbreak. “Metropolitan areas still account for a disproportionate share of South Africa’s economy. The risk is that a restrictive level4 shutdown will remain in place in metropolitan areas, where economic activity is most concentrated,” Khan said.

PwC Strategy& Africa economists Lullu Krugel and Christie Viljoen also expect a rate cut of 50 basis points.

“Given the deterioration in the economic outlook since the last monetary policy meeting – where it was conceivable that the easing of lockdown regulations would be much more accommodative from May 1 – the SARB will definitely revise its economic growth forecast to show a deeper recession this year.

“Hopefully, South Africa will get more information from the Cabinet in the coming week on the future easing of lockdown restrictions – this will directly impact the central bank’s economic forecasts,” they said.

Reserve Bank cuts repo rate to 4.25%

By Ray White for EWN

The South African Reserve Bank (SARB) has announced an emergency cut of the repo rate by another 100 basis points.

This brings the country’s rate to 4.25%.

The bank cut the rate by one percentage point last month.

Reserve Bank Governor Lesetja Kganyago said that the country’s economy was under pressure and growth forecasts in negative territory.

“The bank expects GDP in 2020 to contract by 6.1% compared to -0.2% expected just a few weeks ago.”

He said that China appeared to be recovering and this was good news for economies, including South Africa.

However, for now, the rand was still under pressure.

“The rand has depreciated by 22.6% against the US dollar since January and by 17.3% since the March meeting of the MPC.”

Governor Kganyago said that inflation was under control for now but this could change and the bank has needed to act.

The South African Reserve Bank held interest rates steady‚ as widely expected‚ on Tuesday‚ at the monetary policy committee’s first meeting of the year.

While economists have cautioned against calling an end to the tightening cycle and the start of lower interest rates — especially after consumer inflation came in at 6.8% last week — they did not expect an increase.

Tuesday’s decision left the repo rate unchanged at 7%. The Bank has raised rates by 75 basis points since the start of 2015‚ and by 200 basis points since January 2014. The last rate increase was 25 basis points in March 2016‚ and followed a 50-point rise in January 2016.

Source: www.timeslive.co.za

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