Reserve Bank of South Africa cuts the interest rate once again

Reserve Bank of South Africa cuts the interest rate once again

Mid-March was a turning point for South Africa. The interest rate was cut for the first time in over a decade to support its economy. Another unexpected cut happened today.

In March, the interest rate was cut by 1% to 5.25%. It was a unanimous decision determined by both a drop in Oil prices and in fear of a hit from the Coronavirus on an economy which is already in recession.

The Reserve Bank of South Africa held today a meeting originally scheduled for May. For the second time in less than a month, they cut the interest rate by one percentage point to 4.25%. The move follows the pattern of other central banks, as a foretelling of economic deterioration by the pandemic. The change in interest rate will become active starting April 15.

The cut comes after President Cyril Ramaphosa extended the 21-day lockdown until the end of April.

The announcement didn’t do the Rand any favor, as it dropped 0.2% at R18.12/$ in morning trade. The bond yield went down 13bps to 10.78%. But this comes as no surprise because, at the beginning of the month, it reached an all-time low of R19.5 against the US Dollar. Analysts and bankers believe that the Rand can drop even more in the short term.

As a direct effect of this, the central Reserve expects the GDP to contract by 6.1% compared to 0.2% expected a month ago. For the next year, GDP is expected to grow by 2.2%, and even more in 2022, by 2.7%. It seems like the World Bank's prediction of economic growth of 1.7% is close to impossible.


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Sources: businesslive.co.za, fin24.com

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The information presented herein is prepared by CAPEX.com and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only and as such it has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience or current financial situation.

Therefore, Key Way Investments Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance is not a reliable indicator of future results.