South Africa’s central bank has slashed its benchmark rate to its lowest in the post-apartheid era as Africa’s most industrialised economy braced itself for a lengthened coronavirus lockdown.
The South African Reserve Bank said in a surprise announcement on Tuesday that it had cut its main repo rate by a percentage point, to 4.25 per cent, less than a month after it unveiled an earlier cut of the same size.
The South African rand slipped by more than 1 per cent to trade at a rate of 18.3 against the US dollar following the announcement.
The bank’s emergency rate cut underlines the danger to South Africa’s economy after President Cyril Ramaphosa last week extended the national lockdown by a fortnight to the end of April.
The economy is likely to contract by more than 6 per cent this year, the bank said, compared with its forecast for a 0.2 per cent fall made three weeks ago.
A longer lockdown “will likely also increase job losses with further consequences for aggregate demand,” Lesetja Kganyago, governor of the central bank, said.
The bank still expects inflation to remain well within its target range of 3 to 6 per cent.
In recent weeks the central bank has launched purchases of undisclosed amounts of government bonds to unblock local money markets and announced relief measures on bank loans for businesses affected by the pandemic.
There have been more than 2,200 confirmed coronavirus cases in South Africa. Public health officials have said the growth in cases has been lower than expected and that the lockdown has bought the country time to prepare for a peak in infections.
South Africa’s economy was already struggling before the country implemented the containment measures, following years of stagnant growth and with unemployment at close to 30 per cent.
Moody’s downgraded the government’s credit rating to below investment grade last month in response to a rapid rise in debt and a legacy of graft, completing South Africa’s long descent into junk status.
The debt load has left the government with limited resources to stimulate the economy through the lockdown. Civil society groups have warned of a looming humanitarian crisis without more state support for the poorest.
Tito Mboweni, the finance minister, said on Tuesday that he was “leaving no stone unturned” in a search for international financing to aid South Africa’s pandemic response.
The rand has lost more than a fifth of its value against the US dollar so far this year, part of the rout in emerging markets as investors retreat to safe havens.
Additional reporting by Tommy Stubbington