100-Basis Point Cut in South Africa’s Central Bank Policy Rate

April 14, 2020

Officials at the South African Reserve Bank unanimously authorized the second full percentage point reduction of their key interest rate in the past four weeks. The rate, which had crested at 6.75% after 175 basis points of tightening in 2018, was lowered to 4.25%. The latest 100-basis point reduction was twice as much as analysts were anticipating. A statement released by SARB mentions an IMF projected drop of about 3% in global GDP this year and predicts that South African GDP will tumble 6.1% in 2020 in spite of its policy support. The country’s planned lockdown was recently lengthened to five weeks in all, and its credit rating was recently downgraded by Moody’s. Officials are concerned about the extreme recent volatility of financial markets, and they believe that in spite of the rand’s slide of more than 20% from this year’s high point that inflation will be contained and that risks to the inflation outlook of 3.6% this year are skewed to the downside.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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