Slight relief for consumers as Bank cuts interest rates by a quarter of a percent
In a move that could offer some respite to SA’s battling consumers, Reserve Bank governor Lesetja Kganyago announced an interest rate cut of 25 basis points (bps) on Thursday.
The cut, which takes the repo rate to 6.25%, was not entirely unexpected as SA’s growth has flagged and inflation has slowed to its lowest levels since December 2010. However, many economists believed the bank would stay hawkish as the country confronts a difficult February budget and the possibility of a ratings downgrade by Moody’s Investors Services.
The bank cut its GDP growth forecast to 0.4% for 2019 (from 0.5%) thanks largely to electricity supply constraints.
The forecasts for 2020 and 2021 have also been lowered, to 1.2% (from 1.4%) and 1.6% (from 1.7%), respectively.
Electricity supply constraints will likely keep economic activity muted in the near term, Kganyago said in the MPC statement.
The bank revised its inflation forecast “significantly lower” from its last meeting in November. The Bank now expects inflation to average 4.1% in 2019 (from 4.2%), 4.7% in 2020 (from 5.1%) and 4.6% for 2021 (from 4.7%).
SA’s economy continues to flag amid rolling blackouts instituted by Eskom, which began again in December. The shortages have weighed on expectations for growth and the bank has joined institutions such as the World Bank in cutting growth forecasts.