SARB cuts repo rate by 25 basis points

Reuters

Reserve Bank has cut its benchmark repurchase rate, at which it lends to commercial banks, by 25 basis points as expected, saying the risks to the inflation outlook had subsided.

The Bank's monetary policy committee last cut rates at its July 2017 meeting‚ which was the first cut in five years and took the repo rate to 6.75%.

"As a result the central bank might use the favourable environment to cut interest rates and support the economic recovery as it had done in the summer of 2017". The stronger rand was expected to offset the upward pressure the April 1 hike in the Value-Added Tax rate would place on inflation over the coming year.

To make an appreciable impact on employment and potential output, the current improved levels of confidence will need to be sustained and translate into higher levels of investment, said Kganyago.

-Strategists cautious, some bearish, on Rand citing 11% overvaluation.


"While these developments are welcome, the MPC [monetary policy committee] would prefer to see inflation expectations anchored closer to the midpoint of the target band", Kganyago said.

The global economic outlook has remained favorable, so is the domestic economic growth outlook, amid a relatively synchronized upswing in the advanced economies, although risk and vulnerabilities remain, SARB Governor Lesetja Kganyago said.

The rand initially weakened to R11.77 to the dollar during the governor's statement, but picked up to R11.74, ending Tuesday at R11.67. Although the committee described the growth outlook as "more positive but still challenging", Kganyago said the risks to the growth forecast were on the upside. The SARB now predicts 2019 consumer price inflation of 4.9%, down from the 5.1% increase predicted in January, while 2019 growth is now seen at 1.5% as opposed to the 1.6% penciled in previously.

"That is in theory, we all know that theory rarely compliments reality and there are a fair few among us that believes the rand will strengthen after the rate cut", she said.

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