South Africa cuts interest rates to soften virus impact

South Africa’s central bank on Thursday cut its key interest rate for the fifth time this year in a bid to breathe life into the coronavirus-stricken economy.

Along with other central banks around the world to aggressively lower borrowing costs in a bid to soften economic blow from COVID-19, the South African Reserve Bank cut its repurchase or “repo” rate by 0.25 percentage points to a record low of 3.5 percent.

Already this year, the bank had previously cut the rate by a total 2.75 percentage points to provide relief to indebted consumers as the negative effects from the coronavirus pandemic make themselves felt.

President Cyril Ramaphosa imposed a lockdown in March, but began loosening some of the restrictions in June to allow for economic activity to resume.

But the country’s economy was already in tatters before the onset of the pandemic, with credit ratings agencies downgrading South Africa’s sovereign debt.

Reserve Bank governor Lesetja Kganyago warned that even as the lockdown is relaxed in coming months, investment, exports and imports are expected to decline sharply across the year as a whole.

Job losses and unemployment, already at record highs of above 30 percent, are also expected to climb further.

The central bank also downgraded its growth estimate for the second quarter and said it expected gross domestic product to contract by 7.3 percent in 2020, instead of the 7.0 percent forecast in May.

“The deepest contractions are expected in the second quarter of 2020, with gradual recoveries in the third and fourth quarters of the year,” Kganyago said.

The rate decision comes at a time when consumer inflation is at a 15-year low at 2.1 percent.

Since January, the rand has depreciated by 15.2 percent against the dollar, the governor said.

South Africa is the country in Africa that has been worst hit by the coronavirus pandemic and, with over 400,000 infections so far, ranks among the top five in the world in terms of confirmed cases.