The South African Reserve Bank (SARB) has cut rates for the fifth time this year. The SARB reduced interest rates by 25 basis points, to 3.5%. According to BusinessLive this is the lowest rate in 47 years.
The SARB has reduced the repo rate by 300 basis points so far this year.
The governor of the bank, Lesetja Kganyago, said that he expected inflation to remain contained for the next two years, although some economists have warned that South Africa faces a deflation risk. Latest inflation figures showed that South African annual inflation was 2.1% in May, the lowest since September 2004, and outside the SARB’s inflation target of between three and six percent.
Kganyago pooh-poohed the risks of deflation. He said: ‘Deflation means prices have turned negative and that is not what we are experiencing in the SA economic space at the moment. Inflation is well contained. Over the next two years, 2021 and 2022, we do not see inflation as a problem. It is within target and it is closer to the midpoint of our inflation target range.’
The SARB expects inflation to average above 3% for 2020 and over 4% for 2021 and 2022. The economy is expected to contract by 7.3% this year.