South Africa: SARB slashes rate to record low as coronavirus darkens economic outlook
At an emergency meeting ending on 14 April, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) unanimously decided to axe the repurchase rate by 100 basis points to 4.25%, reaching an all-time low and marking the second cut in less than a month.
Downside risks to inflation posed by the Covid-19 pandemic allowed the Bank to cut rates in order to support the economy through the crisis. Lower oil prices and downbeat domestic demand are pulling down inflation, largely outweighing the upside risks on price growth posed by the dramatic currency depreciation seen over the past two months and amid heightened fiscal risks. The Bank thus estimated there was room to step up its response to the demand shock induced by the virus, at a time when credit rating downgrades by Moody’s and Fitch Ratings have diminished the country’s ability to tap international credit markets.
In its forward-looking guidance, the Bank projects further rate cuts ahead, provided inflation remains within expectations. Under its current base line scenario, inflation is expected to remain within the target band in the forecast horizon. Nevertheless, although monetary policy should reduce financial volatility to some extent, and will support consumers and businesses through current conditions, fiscal risks and a wider output gap remain the key underlying challenges for the economy ahead.
The MPC’s next meeting will be held on 21 May.