South Africa slashes rates again in surprise move

South Africa's central bank made a surprise cut to its benchmark rate as it moved to deal with the global impact of the coronavirus pandemic.

The Reserve Bank cut its main repo rate by 100 basis points to 4.25%, following an identical reduction last month and a 25 point decrease in January. The rand fell more than 1% against the US dollar on the news.

It also warned that more cuts could follow after President Cyril Ramaphosa extended a nationwide lockdown by two weeks last Thursday. South Africa has seen more than 2,200 confirmed coronavirus cases.

The SARB's governor Lesetja Kganyago said the decision was unanimous among members of its monetary policy committee and was it was direct response to the extension of the lockdown.

“Both the supply and demand effects of this extension reduce growth in the shorter term as businesses stay shut for longer and households with incomes spend less,” Kganyago said.

“This will likely also increase job losses with further consequences for aggregate demand.”

He the bank expects the economy to contract 6.1% in 2020 as the country undergoes more mass testing for the virus that has crippled global trade.

However, the bank saw growth recovering gradually, to 2.1% in 2021 and 2.7% in 2022, once the crisis passed. It also said falling inflation gave it room to cut rates to boost demand and expected it to remain well within its target range of 3% - 6%.