South Africa

South Africa Monetary Policy March 2020

South Africa: SARB slashes rates as coronavirus darkens economic outlook

At its meeting ending 18 March, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) unanimously decided to axe the repurchase rate by 100 basis points to 5.25%, its lowest point since December 2013. The magnitude of the cut was greater than what market analysts had expected and reflected the need to support the economy amid rapidly deteriorating conditions due to the coronavirus (Covid-19) outbreak.

Within-target inflation and lower inflation expectations emboldened the Bank to decisively cut rates in order to insulate businesses and households from the economic and financial impacts of the Covid-19 pandemic and support an already depressed economy. Although inflation ticked up to 4.6% in February (January: 4.5%), inflation expectations remain moderate owing to lower prices for energy and food, and slower wage growth. On the other hand, downside risks to economic activity have exacerbated since the previous meeting owing to the global pandemic disrupting already fragile supply chains and weighing on domestic and external demand.

In its forward-looking guidance, the Bank highlighted that under their current baseline scenario further easing was likely ahead, provided inflation expectations remain well-anchored. Nevertheless, although monetary policy can reduce financial volatility, and 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.

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