South Africa central bank cuts rates, sees GDP contracting 7%

PRETORIA, South Africa – South Africa’s central bank on Thursday, May 21, cut its main interest rate by 0.50 basis points, announcing the economy would shrink 7% in 2020 as the economy buckles under the coronavirus pandemic.

This is the 4th time the bank has eased rates this year and takes the lending rate to 3.75%.

The South African Reserve Bank had last month forecast a growth contraction of 6.1%, but as the virus impact grows the economy is now expected to decline by 7%.

South Africa, which has the biggest industrialized economy in Africa, had already slipped into a recession in the final quarter of 2019 before the virus arrived.

The bank’s governor Lesetja Kganyago said the South African rand has depreciated by 22.9 since January.

Inflation is forecast to average 3.4% this year.

“Despite sustained higher levels of country financing risk, the [monetary policy] committee notes that the economic contraction and slow recovery will keep inflation well below the midpoint of the target range for this year,” Kganyago told a news conference.

“Against this backdrop, the [bank] decided to cut the repo rate by 50 basis points, taking it to 3.75% per annum,” said the governor.

South Africa has the highest recorded numbers of coronavirus infections in sub-Saharan Africa, with 18,003 cases including 339 fatalities.

The outbreak prompted President Cyril Ramaphosa to impose a total lockdown, which kicked in on March 27 and was slightly eased since May 1.

The World Bank has warned that sub-Saharan Africa could slip into its first recession in 25 years because of the pandemic. – Rappler.com