Economists are divided on whether the South African Reserve Bank’s (SARB) monetary policy committee (MPC) will hold or decrease interest rates at its meeting on Thursday.
Forty-five percent of economists polled by Finder said the repo rate will decrease by at least 25 basis points, while 55% said the SARB is unlikely to cut rates further in the short term.
CEO and chief economist at Antswisa Transaction Advisory Services Miyelani Mkhabela said that the rate will hold, given that the MPC has already cut the rate by 275 basis points this year, but thinks there is scope to cut the rate later in the year.
“The MPC’s April surprise 100 basis point cut was a great monetary policy strategy and we hope to see another cut in the short term, as we still have room to cut with another 100 basis points in the 2020 third and fourth quarter,” he said.
At its last MPC meeting in May, the central bank slashed its key repo rate, the rate at which the SARB lends to commercial banks, by 50 basis points to 3.75%. The May cut followed a 100 basis point rate cut in April’s emergency meeting, bringing borrowing costs to their lowest level on record amid the Coronavirus crisis.
Of the many problems SA faces, inflation is not one of them. With Statistics South Africa this week reporting that inflation fell in May to a 16-year low of 2.1%, it is now well below the Reserve Bank’s target range of 3%-6%. Ilse Botha, professor at the University of Johannesburg, has forecast that the SARB will cut the repo rate.
“Due to the current economic climate, debt levels are rising and a rate cut will be beneficial. Inflation is also currently within target and expansionary monetary policy makes sense, although a rate cut will not necessarily result in higher spending currently,” Botha said.
SA’s consumers have seen their buying power come under significant pressure since the outbreak of COVID-19. A staggering yet understandable 58% of SA households are facing high or overwhelming financial stress as the crisis knocks savings and raises debt levels, according to the latest Old Mutual Savings & Investment Monitor.
Lynette Nicholson, head of research and insights at Old Mutual, said: “A very alarming consequence of the financial pressures South African households are experiencing is that just over 50% are currently dipping into their savings just to make ends meet, 37% have fallen behind on paying household bills and 23% have cashed in a savings/investment policy.”
