Pressure on SA Reserve Bank to cut interest rates

All eyes will be on South African Reserve Bank (Sarb) governor Lesetja Kganyago today as pressure mounts on him and his colleagues to slash interest rates to boost an ailing economy which has been further hurt by the outbreak of the Coronavirus.

Jeff Schultz, senior economist at BNP Paribas South Africa, said coordinated global central bank action in the past week has opened the door to a bolder cut from the South African central bank.

“We expect a 50 basis points (Bp) cut in the policy rate to 5.75%, though we think a 75bp cut is also possible, depending on how large its (SARB) growth downgrades are,” Schultz said.

“For now, we maintain our call for the policy rate to end 2020 at 5.50%, though acknowledge that the risks of a much larger recession than we forecast are building, prompting potentially deeper cuts in the second half of the year.”

The US Federal Reserve – the World’s de facto central bank, on Sunday cut interest rates in the USA to near zero as the coronavirus batters the US economy. The US Federal Reserve also made a deal with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, to lower their rates on currency swaps to keep the financial markets functioning normally.

Investec’s Annabel Bishop said a 50bp cut is now a possibility for SA interest rates.

The Sarb’s Monetary Policy Committee, which concludes its meeting today, in January decided to reduce the repo rate by 25bp to 6.25% from 6.5% – in an unanimous decision.

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