South Africa cuts key interest rate in virus response

[PRETORIA] South Africa's central bank on Thursday cut its main interest rate by a full percentage point to 5.25 per cent in response to a deepening impact of the coronavirus outbreak.

The announcement was made after the bank's monetary policy committee met for its regular meeting and as the country battles to control the virus outbreak which has infected at least 150 people so far.

The committee "decided to cut the repo rate by 100 basis points," said South African Reserve Bank governor Lesetja Kganyago. "This takes the repo rate to 5.25 percent per annum".

South Africa, which has recorded the highest numbers of infection in sub-Saharan Africa, slipped into a recession during the final quarter of 2019.

The virus outbreak has added to the country's economic woes and the bank forecasts a prolonged recession.

The domestic economic outlook in the continent's most industrialised economy "remains fragile", said the governor, and is forecast to contract by 0.2 per cent in 2020.

"The Covid-19 outbreak will have a major health and social impact, and forecasting global and domestic activity presents significant uncertainty," the governor said.

"The technical recession of the latter half of 2019 contributed to a lower economic growth forecast.

"Apart from the Covid-19 global pandemic, electricity supply constraints and other sources of uncertainty are expected to keep economic activity muted," he said.

The cut in interest rates is expected to ease the financial pressure on consumers.

The drop in rates "is likely to bring some much needed relief to the highly constrained consumer, burdened by elevated administered prices and rising unemployment," said Investec bank's economist Lara Hodes.

Trade union federation Cosatu welcomed the bank's "boldness and decisiveness".

But the cut will "unfortunately not support the South African economy that much," according to economist Dawie Roodt.

"What we actually do need at this point is huge fiscal stimulus unfortunately because of mismanagement of fiscal accounts in recent years, fiscal is imply not affordable at this point," said Roodt who is the chief economist of finacial service firm, Efficient Group.

"The South African economy is likely to contract by two percent or even more during 2020," he added.

As risk aversion grips the world markets in the wake of the coronavirus pandemic, South Africa's rand has depreciated by 17.2 per cent against the US dollar since the start of the year.

AFP