By Kola Olapite
The South African Reserve Bank’s monetary committee further cut the interest rate (REPO) to 3.75% which amounts to 50 basis points as part of the palliative measures to stimulate economic activities which have been on a standstill resulting in the lockdown due to an invasion of the global monster, tagged: coronavirus pandemic.
The Monetary Policy Committee of the apex bank in the country made this decision in its emergency meeting of May 21, 2020 to further cut the repurchase rate by 50 basis points, bringing it to 3.75% per annum, with effect from 22 May 2020.
This interest rate cut by SARB will be the third time in a space of 3 months that the country’s central bank will reduce her interest rate to mitigate the harsh effects of the covid19 on the South African economy and businesses.
In retrospect, the monetary committee of the SARB cut the repo rate by 100 basis points in March 19th, from 6.25% to 5.25%. In April 14th, the bank’s monetary committee decided to further cut the interest rate by another 100 basis points from 5.25% to 4.25% to stimulate the economic activities of the country.
In a simple term, repo rate (3.75%) which explains the interest rate that is charged by the South African Reserve Bank when lending money to the country’s commercial banks would in no small measure affect the gradual economic and business growth in country. For instance, a low interest rate will encourage many businesses or firms to borrow money to salvage their nose-diving business activities, there will be an increase in the liquidity in the market economy and this would also increase consumers spending which eventually leads to production of more goods and services in the country.
The latest interest rate cut to 3.75% is the lowest level since 1973. It will now reduce commercial banks’ prime lending rate below 7.75% where it stands presently.
This positive change comes a month and few days after the SARB announced 100 basis points cut at its last MPC meeting in April 14th, 2020. Delivering the emergency monetary policy statement on Thursday, May 21st, 2020, Reserve Bank governor Lesetja Kganyago, announced a new reduction in the interest rate amid the Covid-19 pandemic that has spread globally, with its impact being felt by all the global economies.
“Current estimates from the International Monetary Fund show global growth contracting by about 2.9% this year. Economic contractions are expected to be deepest in the second quarter of 2020, with some recovery expected in the third quarter of the year,” SARB governor warned
| “Economic contractions are expected to be deepest in the second quarter of 2020, with some recovery expected in the third quarter of the year.”- SARB governor, Lesetjia Nganyago. |
