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South African Reserve Bank (SARB) Monetary Policy Committee (MPC) on Thursday lowered the repo rate by 25 basis points, taking the rate to a four-decade record low of 3.5 percent and the prime commercial lending rate to 7 percent.

SARB governor Lesego Kganyago said this wasn’t a unanimous decision, adding that “three members preferred a cut of 25 basis points and two preferred to keep rates on hold.”

The governor said that projections indicated another repo rate cut in the fourth quarter of this year.

He said the overall risk to the inflation seemed to be “balanced.”

“The Committee notes that the economic contraction and slow recovery will keep inflation well below the midpoint of the target range for this year.

“Barring risks outlined earlier, inflation is expected to be well contained over the medium-term. The Bank’s headline consumer price inflation forecast averages 3.4 percent in 2020,” he said.

Kganyago said the COVID-19 have caused major health, social and economic effects, presenting challenges in forecasting domestic and global economic activity.

“Our second quarter estimate for output has been revised lower. The Bank currently expects GDP in 2020 to contract by 7.3 percent, compared to the 7.0 percent contraction forecast in May. Even as the lockdown is relaxed in coming months, for the year as a whole, investment, exports and imports are expected to decline sharply. Job losses are also expected to rise further,” said Kganyago.

SARB predicts the GDP to grow by 3.7 percent in 2021 and by 2.8 percent in 2022. Enditem

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