SA Reserve Bank cuts repo rate

Wealth

SA Reserve Bank cuts repo rate

The South African Reserve Bank’s monetary policy committee has cut the benchmark repo rate by 25 basis points from 6.75% to 6.5%. This is the first time since March 2018 that the benchmark interest rate has been cut.

Good day,

The South African Reserve Bank’s monetary policy committee has cut the benchmark repo rate by 25 basis points from 6.75% to 6.5%. This is the first time since March 2018 that the benchmark interest rate has been cut. The repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks. Changes in the repo rate affect the prime lending rate, which is the lowest rate at which banks start lending to clients.  With the repo rate down, the prime lending rate will decline to 10% from 10.25%.

The governor of the SARB, Lesetja Kganyago, said that, based on short-term indicators, a rebound of the gross domestic product (GDP) is expected in the second quarter of the year. This after GDP contracted by 3.2% in the first three months of the year. He said that the central bank now expects the South African economy to grow by 0.6% in 2019. The reduction had been wildly expected and government bonds did not react much to the news. The currency also remained unchanged. Equity markets reacted positively to growth expectations and gained 1.71% for the week.

Rates is the topic of discussion on the international front as well. Comments by the president of the Federal Reserve Bank of New York and the vice chairman of the Federal Reserve Board on Thursday raised expectations that the central bank will cut rates aggressively at its meeting at the end of July. Futures markets have completely priced in at least a 25 basis point rate reduction, with a 41% chance of a 50 basis point cut in the US on 31 July.

With the US Federal Reserve and European Central Bank expected to cut rates in the coming weeks, the Bank of Korea surprised markets on Thursday by cutting its repo rate by a quarter of a point to 1.50% – the first time in three years. Central banks in Indonesia also cut their rates amid declines in economic growth.

It would seem that the world is in a rate-cutting cycle in order to stimulate economic growth.

Kind regards.

 

 

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