Moody’s sees rate cuts as ‘complex economic problems’ need support

By Ana Monteiro

(Bloomberg) – Moody’s Investors Service sees South Africa’s central bank cutting its interest rate to support the economy.

The economy of Africa’s most-industrialised country will probably expand 1% this year and 1.5% in 2020, the ratings company said in its emailed global macro outlook document Thursday.

While the Monetary Policy Committee decided to maintain the repurchase rate at 6.75% in May, two of the five MPC members favoured a 25 basis-point cut. The bank slashed the nation’s economic-growth forecast to 1% from 1.3% previously.

Read also: Brace yourself for higher interest rates to 2020 – Reserve Bank

President Cyril Ramaphosa’s new administration, elected last month, faces the challenge of boosting confidence in the economy as it confronts a growing fiscal deficit and escalating debt that are risking South Africa’s final investment-grade credit rating at Moody’s. The economy shrank the most in a decade in the first quarter as mining and manufacturing contracted. Business sentiment remains subdued amid policy uncertainty and the absence of meaningful reforms.

“South Africa faces complex economic problems,” Moody’s said. “The task of reviving the economy will be challenging and reforms will take time to show effects.”