South African Reserve Bank Cuts Repo Rates to 4.25%

The Monetary Policy Committee (MPC) of the South African Reserve Bank has suddenly decided to cut the repo rate by 100 basis points. This takes the repo rate to 4.25% per annum, the Reserve Bank said in a press statement on Tuesday.

The Bank said the May 2020 meeting of the MPC was moved earlier and took place today where the decision was made.

A press conference was hosted on Zoom and streamed live on Facebook and YouTube.

This is the second major cut in under a month, and has resulted in the Rand weaking to around R18.17.

In a statement issued by Lesetja Kganyago, Governor of the South African Reserve Bank, he said since the March meeting of the Monetary Policy Committee (MPC), the Covid-19 pandemic has spread globally and its impact is being felt through all economies. Current estimates from the IMF show global growth contracting this year by about 2.9%.

“Economic contractions are expected to be deepest in the second quarter of 2020, with some recovery expected in the third quarter of the year. The strength of the recovery into the fourth quarter and 2021 will depend on how quickly countries are able to open up for economic activity safely, requiring sustainable social distancing rules, safety processes put in place by businesses and public institutions, and capacity of hospitals to accommodate those in need.

“Current indications from the World Health Organisation are that the pandemic is unlikely to end quickly, with shorter, less virulent waves hitting over time.

“The uncertainties of the crisis have led to extremely high volatility in financial asset prices, with sharp and deep market sell-offs followed by a partial recovery. At this stage, the sustainability of that recovery remains uncertain, and global markets remain in risk-off mode. This has implications for emerging markets and South Africa in particular, as investor appetite for rand-denominated equities and bonds is expected to remain weak.”