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Monday Jul 27, 2020

SARB cuts repo rate by another 25 basis points

The South African Reserve Bank (Sarb) yesterday announced a further 25 basis points cut in the repurchase (repo) rate as the economy struggles to recover from the impact of the coronavirus, a move welcomed by the property market.

Sarb governor Lesetja Kganyago said the bank's Monetary Policy Committee (MPC) had decided to cut the repo rate to 3.5 percent as inflation dipped to a 16-year low of 2.1percent in May, from 3 percent in April.

Kganyago said three members of the MPC preferred a cut of 25 basis points and two preferred to keep rates on hold.
The rate cut would reduce the prime lending rate to a further historic low of 7 percent.

Sarb had already slashed the repo rate by 275basis points to soften the effects of Covid-19.

Kganyago said the Covid-19 crisis has caused extreme volatility in the prices of financial assets, with sharp and deep market sell-offs followed by a partial recovery.

He said that despite sustained higher levels of country financing risk, the economic contraction and slow recovery would keep inflation well below the midpoint of the bank's target range for this year.

"Against this backdrop, the MPC decided to cut the repo rate by 25 basis points, taking it to 3.5 percent per annum, with effect from July 24, 2020," Kganyago said.

"The implied path of policy rates over the forecast period generated by the Quarterly Projection Model indicates one repo rate cut of 25 basis points in the fourth quarter of 2020, remaining unchanged in the first quarter of 2021."

Kganyago reiterated that monetary policy cannot on its own improve the potential growth rate of the economy or reduce fiscal risks.

He said even as the lockdown was relaxed in coming months, exports and imports were expected to decline sharply this year, adding that job losses were also expected to rise further.

Sarb's headline consumer price inflation forecast averages 3.4percent for this year, and is marginally lower than the previously forecast of 4.3 percent in 2021 and 2022.

Property firms welcomed the rate cut.

Adrian Goslett, the regional director and chief executive of RE/MAX of Southern Africa, said: "As things stand, their (the MPCs) previous cuts have already generated increased appetite in the first-time buyers' market. This cut will hopefully go a long way to help speed up recovery within the housing market and fuel further growth in the economy."

Samuel Seeff, the chairperson of the Seeff Property Group, said the decision would bring welcome relief for the property market and households.

"While welcomed, Seeff remains of the view that the bank should be taking a more aggressive stance with deeper cuts to boost the economy and property market during this unprecedented economic recession. People are not spending and the economy is simply not moving. More needs to be done to give momentum to the economy and property market," he said.

Andrew Golding, the chief executive of Pam Golding Properties, said the residential housing market had seen a meaningful reduction in the repo rate for the year to date, which has had a positive impact on demand, particularly in the price band below R2million, where Pam Golding Properties was experiencing a high uptake among first-time and other buyers and investors.

Cape Argus
24 Jul 2020


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