Calls for Reserve Bank to cut interest rates amid COVID-19 pandemic

Pressure is mounting on the South African Reserve Bank to cut interest rates as the impact of the coronavirus chokes economic activity.

The Federal Reserve Board on Sunday implemented its second emergency interest rate cut this month, because of its increasingly dire predictions about the economic impact of the coronavirus.

The Fed cut its benchmark interest rate by a full percentage point, to a range of zero to 0.25 %. This is aimed at making it easier for banks to lend money to businesses facing a steep and sudden drop in revenue as the virus forces them to curtail their activity or shut down.

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Financial markets have plunged in recent weeks as investors fixated on potential costs of the coronavirus outbreak. Now all eyes are on the Reserve Bank’s Monetary Policy Committee.

US President Donald Trump says he is “very happy” after the US Federal Reserve cut interest rates to near-zero on Sunday in another emergency move to help shore up the US economy amid the rapidly escalating global coronavirus pandemic.

Economy in recession

As the world struggles with the spreading coronavirus, the global economy continues to process the economic and financial ramifications.

The coronavirus will keep the South African economy in a recession for much longer with dire consequences. The local economy is taking strain from disruptions in major trading partners and the impact on logistics and tourism.

Tourism has been hard hit. The travel restrictions announced by President Cyril Ramaphosa will be further clipping the industry’s wings as Tourism Business Council of South Africa’s Tshifhiwa Tshivhengwa explains: 

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Economists forecast economic growth for this year to be revised downwards from an earlier expected 0.4% to below zero.

Meanwhile, Minister of Finance, Tito Mboweni says that a conversation between him and the Governor of the South African Reserve Bank, Lesetja Kganyago, is taking place regarding what to do in the current pandemic.

“I know some of you think that you can solve the world’s problems by reducing the interest rates. You’re wrong, but the SARB knows its responsibility in times of a pandemic. So, don’t over pressurise them. Leave the conversation to me and the governor of the SARB its taking place so don’t worry about that,” says Mboweni.

Mboweni says his department stands ready to make funds from the national disaster fund available.

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With many other countries across the globe holding emergency meetings over repo rates, Mboweni assures the country not to worry about the reduction of interest rates in the midst of the impact of the coronavirus outbreak on global growth.

The bank will on Thursday release its statement from the Monetary Policy Committee.

With even lower growth projections, economists say it’s almost a given that Moody’s will downgrade South Africa to junk status.

Jannie Rossouw of the Wits Business School warns that as a result of the coronavirus outbreak, other agencies that already have South Africa at below investment grade could further downgrade to an even lower rating.

-Reporting by  Nothando Magudulela and Glorious Sefako-Musi 

Source: SABC News (sabcnews.com)