By Fin24
Cape Town – SA Reserve Bank governor Lesetja Kganyago announced on Thursday that the Monetary Policy Committee has decided to cut the interest rates.
This means the repo rate, which is the interest rate at which the SARB lends money to commercial banks, is now 6.75%. The cost of borrowing is 10.25%.
Interest rates have remained unchanged for 15 consecutive months.
“The domestic growth outlook remains a concern”, said Kganyago.
The SARB also revised down economic growth for the country from 1% – 0.5% for this year.
Earlier on Thursday the European Central Bank also left interest rates unchanged. The rand was trading sideways at R12.97 to the US dollar.
Kganyago said the rand remains vulnerable to global monetary policy developments and credit ratings downgrades.
In South Africa a change in the interest rate is often made to keep inflation within the target band of 3% and 6%.
Inflation decreased for the third month in a row in June, according to data from Statistics SA. The annual consumer price index (CPI) eased to 5.1% after a drop to 5.4% in May.
The lower inflation and recessionary conditions are expected to prompt monetary policy easing, according to analysts. However, they added that this is counteracted by the persistent currency risk linked to political uncertainty and the normalising of interest rates by the Federal Reserve Bank in the US.
Kganyago said at the last announcement that a reduction in rates would be possible should inflation continue to surprise on the downside and the forecast over the policy horizon be sustainably within the target range.
Tough times
This month’s SARB MPC announcement followed a tough month fighting off attacks on its mandate.
Public Protector Busisiwe Mkhwebane ordered Parliament to amend the Constitution to change the SARB’s mandate of inflation targeting to one that is more pro-growth.
Parliament wants Mkhwebane’s remedial action set aside.
The SARB is also challenging the remedial action, however the Office of the Public Protector indicated that it will not oppose the court application relating to the Reserve Bank’s mandate.
Source: http://www.fin24.com/Economy/surprise-cut-in-rates-20170720
