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The Monetary Policy Committee (MPC) once again unanimously voted in favour of lowering the repo rate this month, although 2 out of the 5 members preferred a shallower cut. In a vote of 3 to 2, the MPC decided to lower the repo rate by 50bp to 3.75%.
The number of confirmed COVID-19 cases worldwide surpassed one million last week. This number probably still understates the true spread of the coronavirus given the lack of testing in many places, and the fact that some infected persons don’t show symptoms.
Recent weeks have seen the local market hit by a triple whammy. Both local and global markets have crashed as the economic impact of the COVID-19 pandemic begins to be felt resulting in a market sell-off; a rapid decline in oil prices has created a global supply shock. In addition to that, ratings agency Moody’s downgraded South Africa’s credit rating to junk or sub-investment grade.
The South African agriculture sector as well as consumer can breathe a sigh of relief following the announcement of a massive fuel price decrease of R1.76/ litre of both the retail price of the 93 ULP and LRP petrol, with the 95 ULP and LRP petrol falling by R1.88/ litre for Gauteng.
Local investors should stay invested to reap strong future returns. An early decisive response to the COVID-19 threat should contain the spread of the virus in South Africa, but the economic repercussions in the short term will be costly. Local measures to contain the virus will add to an already weak economy and negative global impact.
The Monetary Policy Committee (MPC) unanimously decided to decrease the repo rate by 100 basis points to 5.25%. This somewhat unprecedented move was a direct result of the deterioration in economic conditions due to the COVID-19 pandemic experienced in South Africa and across the globe.
In the midst of a recessionary domestic economy, favourable inflation outlook and lower oil prices, the South African Reserve Bank (SARB) got room to cut interest rates by 100 basis points to 5.25%. A rate cut, downside inflation outlook and supportive rand boost agriculture rebound.
The global economy has been hit by five shocks as the coronavirus spread rapidly. This could not have been predicted, though with hindsight the market was initially much too complacent. The situation is so uncertain now that a strategy based on trying to predict the future is bound to get it wrong.