Another rate cut is on the cards

Economists expect the South African Reserve Bank (SARB) to cut interest rates further when the monetary policy committee (MPC) convenes for its scheduled meeting this week.

Eighty percent of the economists polled by finder.com said the SARB would again slash interest rates.

The MPC last month took the markets by surprise when it cut the benchmark repo rate by 100 basis points (bp) to 4.25% following a similar cut the previous month. That cut fell outside the scheduled calendar of the MPC, underscoring how seriously the central bank views the impact of COVID-19 on the economy.


Rand Merchant Bank economist Mpho Molopyane said she expected another steep cut.

“We expect the SARB to cut interest rates by 50bp at the May MPC meeting and then put rates on hold at 3.75% through to the end of the year,” Molopyane said.

“This is slightly more and faster than what is implied by the [quarterly projection model], but it fits with a reactive central bank trying to walk the tightrope between providing accommodation to an economy in shock, while ensuring in¡ation does not suddenly skyrocket.”

The MPC is scheduled to meet from Tuesday to Thursday. At its last meeting, the bank said it expected the economy to shrink by 6.1% due to COVID-19 and its impact on economic activity.

Associate professor at the University of Cape Town’s Graduate School of Business, Sean Gossel, said the SARB should cut by 50bps (0.50%) given the “unusual circumstances”.

“The SARB has to balance setting interest rates that will attract foreign capital, but at the same time must ease interest rates to stimulate domestic economic activity. Historically, the SARB has favoured a high interest rate differential to keep the economy moving using international capital ¡ows, but these are not normal times,” Gossel said.

BNP Paribas economist Jeff Schultz said he expected a 75bp (0.75%) cut.

“A combination of further GDP growth downgrades, which we deem as likely alongside growing evidence that in¡ation is likely to breach below the SARB’s lower bound of its 3-6% in¡ation target range, means that the bank is likely to be in a position to deliver further substantial monetary easing from its 21 May MPC meeting,” Schultz said.

Author


Latest News

Trending

Company News

   Loading latest Press Releases...