The South African Reserve Bank monetary policy committee voted to lower the interest rate by one percentage point to 5.25%. This is the biggest cut in more than a decade aimed at stabilizing the economy. The South African authorities expect the economy to shrink in the wake of COVID-19. The prime rate, which commercial banks use as a peg to price loans, was also reduced to 8.75%.
Reserve Bank governor confirmed that an MPC meeting held on Thursday 19 March, 2020 resolved to lower the repurchase rate.
The monetary policy action will ease financial burden and improve households and firms resilience to short term shocks of COVID-19. The MPC revised inflation projections for 2020 from 4.7% to 3.8% arguing that inflation will remain moderate in the short term riding on sharp decline in oil prices. South Africa’s February inflation rose to 4.5% due to volatility in global markets.
The MPC forecasts a 0.2% economic contraction compared to a 1.2% growth announced in January.
South Africa has so far confirmed over 700 COVID-19 cases with the number increasing by 155 cases on Tuesday up from 554. The pandemic has put businesses at risk after the government announced a 21-day lockdown.
South Africa’s reserve bank governor reassured banks that they will not hesitate to inject liquidity if needed.