SARB cuts interest rate by 25bps; halves 2019 growth forecast

By Amogelang Mbatha and John McCorry

(Bloomberg) – South Africa’s central bank cut its benchmark interest rate for the first time in more than a year as it almost halved its economic growth forecast for the year.

The Monetary Policy Committee unanimously decided to lower the repurchase rate to 6.5% from 6.75%, Governor Lesetja Kganyago told reporters Thursday in the capital, Pretoria. All but four of the 22 economists in a Bloomberg survey predicted a cut.

Key insights

  • Thursday’s move may be the last one this year. The central bank’s quarterly projection model forecasts a repurchase rate of 6.6% by the end of this year. The model sees the rate at 6.4% at the end of next year and 6.5% at the end of 2021.
  • The cut may help to boost output in an economy that contracted the most in a decade in the first quarter and created the risk of a second recession in consecutive years. The bank lowered its growth forecast for the year to 0.6% from 1% in May. Gross domestic product hasn’t expanded at more than 2% annually since 2013.
  • The central bank, which seeks to anchor price-growth close to the 4.5% mid-point of its target range, lowered its forecast for annual inflation this year to 4.4% from 4.5% and sees the rate staying inside the desired band until at least the end of 2021.