South African Reserve Bank cuts repo rate by 100 basis points to 4.25% per annum

Posted On Tuesday, 14 April 2020 11:55 Published by
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The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) has cut the interest rate by 100 basis points.

Governor Lesetja Kganyago SARB1

This takes the repo rate to 4.25% per annum, with effect from 15 April 2020. As a result, the prime rate should fall to 7.75%.

Today's announcement was the second major cut following a 100 basis reduction on 20 March 2020.

The repo rate is the interest rate commercial banks pay to borrow money from the Reserve Bank.

South African Reserve Bank Governor Lesetja Kganyago pointed to global economic downturn, the impact of COVID-19 pandemic on the economy and weakening inflation in the short term as the reason for cutting interest rates.

Kganyago notes: "The Bank’ s headline consumer price inflation forecast averages 3.6% for 2020, 4.5% for 2021, and 4. 4% in 2022. The forecast for core inflation is lower at 3.8% in 2020, 4.0% in 2021, and 4.2% in 2022. The overall risks to the inflation outlook at this time appear to be to the downside."

"The implied path of policy rates over the forecast period generated by the Quarterly Projection Model indicates five repo rate cuts of 25 basis points extending into the first quarter of 2021.

"The Bank has taken steps to ensure adequate liquidity in money and government bond markets and to ease capital requirements to free capital for onlending by financial institutions," Kganyago said via social media streaming.

According to Mduduzi Ngwenya, Executive Director of eProp: "The repo rate reduction means that home owners will pay less on their bonds. When SARB cuts the repo rate, banks are expected to reduce the prime rate - the rate at which individuals and entities borrow from commercial banks."

The next statement of the Monetary Policy Committee will be released on 21 May 2020.

Last modified on Tuesday, 14 April 2020 20:48

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