South African central bank delivers surprise rate cut

April 14, 2020
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Demola
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South Africa’s central bank slashed its main lending rate by another 100 basis points on Tuesday, to a record-low 4.25%, after moving forward its monetary policy committee (MPC) meeting scheduled for May.

The surprise move by the South African Reserve Bank (SARB) comes less than a month after its last 100 bps rate cut, a response to the economic impact of the novel coronavirus, which is expected to push the economy into a deep recession.

In a statement announcing the rate cut, the SARB did not explain why it had moved forward the MPC meeting or its decision to lower borrowing costs again.

It said it would hold a media teleconference at 0930 GMT, less than an hour before the finance minister is due to give an update on the government’s plans to tackle the crisis.

SARB said this month the economy could shrink by as much as 4% in 2020 due to the COVID-19 pandemic, which has forced a national lockdown and triggered two credit ratings downgrades.

It also launched a bond-buying programme in late March, seeking to plug a liquidity drought in credit markets that threatened to destabilise commercial banks’ operations.

The SARB has long resisted public and political pressure to intervene more directly in providing stimulus, but recent policy moves bring it into in line with major central banks that have run large-scale asset purchase programmes.

The rand traded down 0.35% after the rate announcement to 18.1610 per dollar at 0920 GMT, while government bond prices firmed.

Source: Reuters