The impact of the COVID 19 outbreak has forced South Africa to cut down its interest rate in response to the virus. South Africa’s central cut its main interest rate 5.25 this Thursday.
This decision came out after the bank’s fiscal policy committee met at a regular meeting while the country is struggling to control the outbreak of the virus which has infected 150 people in South Africa.
Lesetja Kganyago South African Reserve Bank Governor said that it has been decided by the committee to cut the rate by 100 basis points which took the repo rate to 5.25% per annum.
South Africa was struck by a recession in the final quarter of 2019 and now it has the highest number of people infected with the virus in sub-Saharan Africa.
The outbreak has made the country’s economy a misery and the bank says there are chances that the recession will also get prolonged.
According to the Governor, the country’s domestic economy which is known to be the most industrialized one now remains fragile and the forecast shows that it will contract by 0.2% in the following year.
In the current situation, the country will face major social and health impacts due to the virus and the present condition of the domestic and global activities presents uncertainty.
Cutting interest rates will ease the financial pressure on the consumer.
There is a lot of burden of the administered prices and the increasing unemployment, but drop in the rates will add a great relief to the consumers, says Lara Hodes Investec Bank’s Economist.
Where the cut-rate is providing ease to the consumer, on the other hand, it is not very supportive in the South African Economy, states the economist Dawie Roodt.
According to him, there is a need for a huge financial incentive as there has been a lot of mismanagement in the fiscal accounts in recent years, so monetary is significant but at this point, it’s not affordable.
At the start of the year, the wake of the coronavirus devalued the South African rand by 17.2% in comparison with the US dollar.