South African Reserve Bank Cuts Rate to Record Low as Virus Deepens Crisis (DJ)
Last Modified: 09:47 AM, Thu May 21, 2020
21 May 2020

By Aaisha Dadi Patel

JOHANNESBURG--The South African Reserve Bank cut the main repo rate to a record low of 3.75% on Thursday, as Africa's most developed economy continues to strain under a worsening coronavirus outbreak and strict lockdown.

SARB Governor Lesetja Kganyago said the bank now expects South Africa's economy to shrink 7%, the country's deepest recession on record and worse than the 6.1% contraction it forecast in April.

"Even as the lockdown is relaxed in coming months, for the year as a whole, investment, exports and imports are expected to decline sharply," Mr. Kganyago said. "Job losses are also expected to be widespread."

With 19,137 confirmed cases and 369 deaths, data from the World Health Organisation indicate that South Africa is suffering the worst outbreak of coronavirus in Subsaharan Africa, although other countries haven't done the same level of testing.

Between 35,000 and 50,000 South Africans could die this year, according to the South African Covid-19 Modelling Consortium, a group of academics and experts from the country's National Institute for Communicable Diseases, as the number of serious cases of Covid-19 overwhelms a weak health system.

The Reserve Bank has slashed its repo rate from 6.5% in January, in an attempt to provide at least some stimulus for an economy that was already failing to grow before the pandemic hit. The bank also started buying government bonds on the secondary market as investors fled emerging markets.

Mr. Kganyago said the easing of a nation-wide lockdown--one of the world's strictest--will support growth in the near term and some high-frequency activity indicators show a pickup in spending from extremely low levels. The economic impact of the virus is likely to be felt for years to come, with gross domestic product expected to grow 3.8% in 2021 and 2.9% in 2022, he said.

South Africa's statistics agency delayed the release of its consumer-price index, initially planned for Wednesday, by one week, saying its researchers have struggled to collect pricing data amid the lockdown.

Mr. Kganyago said these difficulties, which he expects to continue, as well as the virus's impact on various parts of the economy and society complicate the bank's forecasts.

"These are uncertain times and these uncertain times are actually making economic forecasting very, very tricky," he said. "There are whole industries that have been shut down. How do you assess at what price were they going to sell?"

Weak domestic growth and mounting debt from state-run enterprises pushed Moody's Investors Service to downgrade South Africa's credit rating to "junk" on March 27, following earlier downgrade by other agencies. Since then, the government has announced a 500 billion rand ($27.6 billion) stimulus package, which is set to further drive up government debt.

Write to Aaisha Dadi Patel at aaisha.dadipatel@wsj.com

(END) Dow Jones Newswires

May 21, 2020 09:47 ET (13:47 GMT)

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