BUSINESS MAVERICK: SA Reserve Bank has scope for another interest rate cut this week

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The South African Reserve Bank has scope for another rate cut at its final 2020 Monetary Policy Committee meeting this week, which will end with the policy statement being read by Governor Lesetja Kganyago on Thursday. The consensus is that it will hold the repo rate steady at 3.5%, but conditions are generally ripe for further loosening.

After slashing its key lending rate by 300 basis points to 3.5% in 2020, the South African Reserve Bank finds itself in an unusual position. It has scope for yet another rate cut, even in the face of a strongly rebounding economy.

“… an increasingly bullish outlook for the global capital expenditure cycle over the next 12 months bodes well for emerging market commodity currencies,” NKC African Economics said in a note. Then there is the festering issue of unemployment. With an official jobless rate of 30.8% — or more than 43% under the expanded definition, which includes discouraged jobseekers — demand pressures in the economy are exceptionally weak. Lacking a steady income is a big hindrance to spending.

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