Big rate relief expected
The South African Reserve Bank is expected to cut its repo rate by at least 50 basis points today, the first time since 2012 that the decrease will be bigger than 25 basis points.
Interest rates in Namibia could fall by another 50 to 100 basis points this year, Cirrus Securities says.
In its updated economic outlook, Cirrus says it is likely that the South African Reserve Bank (SARB) will cut its repo rate today following in the steps of central banks of Europe and North America.
Most economists polled by Reuters in South Africa expect SARB to decrease its repo rate by 50 basis points (bps) today, a move which the Bank of Namibia (BoN) will probably follow at its next monetary policy announcement on 15 April.
“While rand weakness may make a large cut uncertain in the short term, should the [corona]virus concerns and reaction remain broadly unchanged for coming months, a number of or large interest rate cuts are highly likely,” Cirrus says.
Disruptions
These cuts will likely be helpful to households and corporates given the expected business disruptions ahead, the analysts added.
“While lower interest rates will pad the extent of rising NPLs [non-performing loans] for commercial banks, net-interest margins will likely come under substantial pressure, depending on the quantum of the rate cut.
“We now expect that interest rates will end the year 75 to 100 bps lower than they started the year, with potential for even greater cuts,” Cirrus says.
The BoN already cut its repo by 25 bps to 6.25% last month. As a result, local commercial banks lower their prime-lending rate to 10%.
In last week's Reuters poll, 12 economists said the SARB would cut by 25 bps to 6.0% at the March meeting, while five said it would deliver a 50 bps cut. The other four said it would keep rates on hold.
In its latest poll, published yesterday, none of the 22 economists expected rates on hold today and 13 expected a 50-bps cut to 5.75%. Seven said rates would be cut 25 by bps and one said the bank would slash the repo rate by 75 bps.
The SARB has not cut in increments larger than 25 bps since 2012.
Aggressive moves
The latest forecast follows aggressive moves by other major central banks trying to mitigate damage from the coronavirus outbreak, Reuters reported.
The Federal Reserve in the US slashed rates to near zero on Sunday, the second rate cut in as many weeks in another emergency move as the coronavirus pandemic tightens its grip on societies across the world, forcing widespread lockdowns and upending the global economy.
Nedbank economists said the SARB will cut by one full percentage point, the same size move as the Fed.
“We are living in unprecedented times. The closest example to this is after the great financial recession - then we did see that [kind of] chop in rates,” said Busisiwe Radebe, economist at Nedbank.
“Given how the Fed has cut dramatically as they have now - and remember, they don't have the type of room we have – we think it [SARB] will cut equally to what they cut, we think it will be 100 basis points,” said Radebe. After the expected 50 bps cut today, the repo rate will remain unchanged until the SARB cuts by 25 bps to 5.5% in either January or March 2021, medians in the latest poll showed. Dozens of central banks have also cut rates recently.
Jo-Maré Duddy –
In its updated economic outlook, Cirrus says it is likely that the South African Reserve Bank (SARB) will cut its repo rate today following in the steps of central banks of Europe and North America.
Most economists polled by Reuters in South Africa expect SARB to decrease its repo rate by 50 basis points (bps) today, a move which the Bank of Namibia (BoN) will probably follow at its next monetary policy announcement on 15 April.
“While rand weakness may make a large cut uncertain in the short term, should the [corona]virus concerns and reaction remain broadly unchanged for coming months, a number of or large interest rate cuts are highly likely,” Cirrus says.
Disruptions
These cuts will likely be helpful to households and corporates given the expected business disruptions ahead, the analysts added.
“While lower interest rates will pad the extent of rising NPLs [non-performing loans] for commercial banks, net-interest margins will likely come under substantial pressure, depending on the quantum of the rate cut.
“We now expect that interest rates will end the year 75 to 100 bps lower than they started the year, with potential for even greater cuts,” Cirrus says.
The BoN already cut its repo by 25 bps to 6.25% last month. As a result, local commercial banks lower their prime-lending rate to 10%.
In last week's Reuters poll, 12 economists said the SARB would cut by 25 bps to 6.0% at the March meeting, while five said it would deliver a 50 bps cut. The other four said it would keep rates on hold.
In its latest poll, published yesterday, none of the 22 economists expected rates on hold today and 13 expected a 50-bps cut to 5.75%. Seven said rates would be cut 25 by bps and one said the bank would slash the repo rate by 75 bps.
The SARB has not cut in increments larger than 25 bps since 2012.
Aggressive moves
The latest forecast follows aggressive moves by other major central banks trying to mitigate damage from the coronavirus outbreak, Reuters reported.
The Federal Reserve in the US slashed rates to near zero on Sunday, the second rate cut in as many weeks in another emergency move as the coronavirus pandemic tightens its grip on societies across the world, forcing widespread lockdowns and upending the global economy.
Nedbank economists said the SARB will cut by one full percentage point, the same size move as the Fed.
“We are living in unprecedented times. The closest example to this is after the great financial recession - then we did see that [kind of] chop in rates,” said Busisiwe Radebe, economist at Nedbank.
“Given how the Fed has cut dramatically as they have now - and remember, they don't have the type of room we have – we think it [SARB] will cut equally to what they cut, we think it will be 100 basis points,” said Radebe. After the expected 50 bps cut today, the repo rate will remain unchanged until the SARB cuts by 25 bps to 5.5% in either January or March 2021, medians in the latest poll showed. Dozens of central banks have also cut rates recently.
Jo-Maré Duddy –
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