BUSINESS MAVERICK: SARB’s MPC is likely to cut rates further this week as economy crumbles

Consumer inflation in South Africa is currently at 2.1%, a 15-year low which is well below the 3% to 6% range that the South African Reserve Bank is mandated to target. That would normally be a cause for celebration. Inflation can have a corrosive effect on an economy, eroding household savings, raising business costs and adding an unwanted layer of uncertainty to longer-range investment plans.

The economy during the second quarter of 2020 may have cratered as much as 30% or more after tanking 2% in Q1, unemployment has soared beyond the 30% level it was last pegged at and hunger is on the rise even as inflation slows. The main cause, of course, is the Covid-19 pandemic and the often questionable measures the government has implemented to contain its spread.

The case for cutting is supported by economist expectations that the SARB likely now sees a bigger GDP contraction in 2020 than the 7% it previously forecast.

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