S/Africa’s apex bank cuts interest rate to 4.25 percent

The South African Reserve Bank has cut its interest rate by 100 basis points, bringing the repo rate to 4.25 percent per annum starting on Wednesday.Announcing this on Tuesday, SARB governor Lesetja Kganyago said the decision to cut the rate had the potential to weaken the local rand currency for a country which is already in recession while monetary policy could ease financial conditions and improve the resilience of households and firms to the economic implications of coronavirus, the bank official said such a policy could “not on its own improve the potential growth rate of the economy or reduce fiscal risks.”These should be addressed by implementing prudent macroeconomic policies and structural reforms that lower costs generally, and increase investment opportunities, potential growth and job creation,” Kganyago said. He added: “While the bank continued to ease interest rates, the bank has also taken steps to ensure adequate liquidity in money and government bond markets, and to ease capital requirements to free capital for on-lending by financial institutions.”
On the pandemic, he said “the outbreak will have a major health and social impact, and forecasting domestic economic activity presents unprecedented uncertainty.”
With that in mind, the bank expects Gross Domestic Product  to contract by 6.1 percent in 2020 “compared to the negative 0.2 percent expected just three weeks ago.”
Gross Domestic Product(GDP) is expected to grow by 2.2 percent in 2021 and by 2.7 percent in 2022,” Kganyago said. The South African government recently extended the coronavirus pandemic lockdown by an additional 14 days, bringing to 35 the total number of days for its stay-home policy.