South African Reserve Bank Governor Lesetja Kganyago.
Gallo Images/Business Day/Freddy Mavunda
The SA Reserve Bank’s Monetary Policy Committee has elected to keep interest rates on hold at 3.5%. But its growth outlook has been revised to a contraction of 8.2% for 2020, from the fall of 7.3% it forecast in July.
The repo rate is the benchmark interest rate at which the bank lends to other banks.
After meeting earlier this week, three of the committee’s members voted in favour of keeping the rates on hold, while two were opposed, said Reserve Bank Governor Lesetja Kganyago.
Ahead of the announcement on Thursday afternoon, most economists had leaned towards the bank keeping rates on hold. But some indicated that SA’s grim second quarter GDP figures, which showed a record 16% contraction on a non-annualised basis, could prompt a cut, as Fin24 previously reported.
The bank’s revised growth forecast comes a result of SA’s protracted lockdown period. The bank now expects growth to contract 8.2% in 2020 the Organisation for Economic Co-operation and Development’s latest projections is for a contraction of 11.5%. This would to be the worst economic performance in 90 years.
The MPC’s announcement follows that of the US Federal Reserve Bank on Wednesday. The Fed kept its rates on hold, reaffirming its plans for an easier monetary policy stance, by keeping rates low until inflation picks up.
The rand subsequently made gains to R16.21/$ on Wednesday, but again weakened on Thursday. The local currency was also helped by President Cyril Ramaphosa’s announcement on Wednesday evening that lockdown restrictions would be eased to Level 1 from midnight on Sunday, noted Investec Chief Economist Annabel Bishop.
Bishop said that the Fed’s “highly dovish stance” supported low interest rates for a long period for SA too.
“A cut in the repo does however erode the differential between SA and US interest rates, which can prompt rand weakness, and the domestic currency could battle to reach R16.00/USD this month,” said Bishop.
Lockdown Level 1 permits larger gatherings, lifts a ban on international travel, allows alcohol sales from Monday to Friday, and adjusts SA’s curfew from midnight to 04:00. However, the president warned of the risk of a second wave of infections, as has been experienced in other parts of the globe, with some countries having to reinstitute strict lockdowns.
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