Regional bank rates steady amid South Africa rate cut

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Southern Times Writer

After the move by the South African Reserve Bank to cut its benchmark repo rate by 25 bps to 6.5 percent on 18 July 2019, most regional countries have not yet reacted to the region’s economic leader’s move.

 

The South African rate cut was the first cut since March last year, amid a persistently uncertain environment. Policymakers noted that inflation expectations continued to moderate and said that they will continue to focus on anchoring it near the mid-point of the inflation target range.

According to Trading Economics,  future policy decisions are highly data dependent, sensitive to the assessment of the balance of risks to the outlook. Also, policymakers said that the GDP is expected to rebound in the second quarter of the year and lowered its outlook for 2019 to 0.6 percent (from 1 percent in a previous projection); while for 2020 and 2021 it was  unchanged at 1.8 percent and 2.0 percent, respectively.

 

The Bank of Namibia left its benchmark repo rate steady at 6.75 percent on 12 June, to support the economy's recovery. Policymakers noted that domestic activity slowed during the first four months of 2019, mainly reflected in sectors such as mining, agriculture, construction, and wholesale and retail trade; and it was projected to remain weak in 2019.

The Namibian economy contracted by 0.1 percent in 2018 and by 0.9 percent in 2017, on lower agricultural output.

The central bank of Botswana also kept its benchmark interest rate unchanged at 5 percent on 27 June, saying that the inflation outlook remained positive amid subdued domestic demand pressures and modest rise in foreign prices.

The central bank of Mozambique, however, lowered its benchmark MIMO interest rate by 100 bps to 13.25 percent on 19 June. It is the first rate cut so far this year, bringing borrowing cost to the lowest since 2016.

“The committee said that the decision is based on the improvement of the inflation outlook due to the current trajectory and expectations of a lower exchange rate pressure in the domestic market and as the aggregate demand is still below its potential. Policymakers added that they will continue to monitor risks related with inflation. The lending facility rate and the deposit facility interest rate were also cut by 100 bps to 16.25 percent and 10.25 percent, respectively. The required reserve ratio for foreign and domestic currency were left unchanged at 14 percent and 36 percent, respectively” reported Trading Economics.

In Zimbabwe, the central bank governor publicised the adjustment in the interest rate on the Reserve Bank overnight window upwards from the 15 percent per annum to 50 percent per annum on the 24 June 2019.

He indicated that this move was to protect lenders from losses that may be accrued due to the inflationary environment, hence the banks will borrow from the central bank at the repo-rate of 50 percent interest and they will on-lend to their clients or customers at 50 percent-plus rate.

 

For other countries such as Malawi, Zambia and Tanzania the benchmark interest rates were last recorded at 13.50 percent,10.25 percent and 7 percent respectively.

Analysts anticipate that the South African cut may not have quick wings on the regional bank rates now as most central banks were trying to stabilise their own economics around monitoring inflation.

“Most of the central banks in the region are focusing on the economic growth of their economics, hence the South African rate cut may not directly influence their bank rate although to some extent it will affect the trading and the currencies values.

“However, since most central banks are targeting inflation, their rates will be depended on the inflation trends,” commented Tinashe Mapungwana, an economic analyst.

 

 

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