This archive report was first published on 22 May 2020.
On May 22, 2020, the South African Reserve Bank made a significant move to mitigate the economic effects of the COVID-19 pandemic by cutting its key lending rate by 50 basis points from 4.25% to 3.75%, the lowest on record.
The Bank's Governor, Lesetja Kganyago, painted a grim picture of the economic outlook, stating that getting back to pre-pandemic activity levels will take time. He noted that the second quarter of 2020 will experience the deepest economic shocks from the coronavirus, with gradual recoveries in the third and fourth quarters of the year.
The Bank expects South Africa's GDP to contract by 7%, compared to the 6.1% contraction forecast in April. However, it predicts a growth of 3.8% in 2021 and 2.9% in 2022.
The Monetary Policy Committee also noted that the coronavirus has caused extreme volatility in financial asset prices, with sharp market sell-offs. Current forecasts from the International Monetary Fund (IMF) show global GDP decreasing by about 3.0% this year.
Market-based expectations for short and medium-term inflation have fallen, while long-term inflation expectations remain higher. The Bank expects the headline consumer price index (CPI) to average 3.4% for 2020, with forecast core inflation at 3.5% in 2020.
The Bank is certain that investment, exports, and imports will decline in the coming months, with widespread job losses. The Rand has depreciated by 22% against the US dollar since January and by 0.7% since the April MPC meeting.
Other monetary policy measures include easing of regulatory requirements on banks and ensuring adequate liquidity in domestic markets. The next statement of the Monetary Policy Committee will be released on July 23, 2020.
