The South African Reserve Bank (SARB) will today release a revised interest rate decision as the country prepares for the new post-pandemic economic reality.
The central bank’s Monetary Policy Committee (MPC) is expected to slash its benchmark rate by at least 25 basis points (bp) to 3.5%, one of its lowest levels in decades. The move is intended to counteract falling performance indicators across the board: consumer inflation stands at a 15-year low of 2.1% while the eventual 2020 GDP contraction is expected to exceed the SARB’s forecast of -7%.
While the cut is expected to bring some relief to South Africa’s flagging private sector—36% of private businesses have enacted short-term layoffs and 9% have ceased operations permanently—analysts expect the rand to suffer in the coming months as emerging markets react to flaring Sino-US tensions, pandemic-induced trade disruptions and an increasingly dominant US dollar.
Although a rate cut is likely—expert expectations range from a hold to a 50-bp revision—there is a chance that the SARB could err on the side of caution after May’s vote was split 3-2 in favour of a reduction. The current easing cycle suggests a possible adjustment of roughly 50-bp over the next three months, followed by a gradual unwind in the run-up to 2021. Reports suggest that quantitative easing measures are off the cards in the short-term, as they could threaten the bank’s long-held credibility among global markets for controlling inflation.
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Daniel is an analyst and editor on the Current Developments team. He contributes regularly to the Daily Brief, focusing primarily on European, Middle Eastern and sub-Saharan politics.