Today’s 25 bps cut brings the South African Reserve Bank’s total interest rate cuts in 2020 to 300 bps

SOUTH AFRICA - Report 23 Jul 2020 by Iraj Abedian

The Reserve Bank’s Monetary Policy Committee again voted to cut interest rates today by 25 basis points following their scheduled July meeting, which puts the repo rate at 3.5% and the prime rate at 7%. This follows the Bank's repo rate cut of 50 bps in May. Cumulatively, this places the Reserve Bank’s interest rate cuts at 300 bps for 2020 so far.

The latest inflation numbers released by Statistics South Africa showed that headline CPI had slowed even further in May 2020 to register 2.1% y/y, following 3% y/y in April. As the Bank usually makes it known that the data is important when it comes to making its interest rate decisions, today’s rate cut did not come as a surprise given the inflation rate levels. The 2.1% rate, the lowest since 2004, places the inflation rate well below the Reserve Bank’s lower bound of its 3%-6% inflation target range. Furthermore, the previous 7.25% prime rate together with the inflation rate had placed South Africa’s real interest rates at over 5%, well above many of the developed countries' rates, which have generally been around zero.

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