(4 minutes read)
· Economists argue that there is still scope for the Reserve Bank of South Africa to cut interest rates this year.
· While a section of economists put a reduction of interest rate by 25 basis points as the ideal one, there is another segment of fiscal experts who maintain the view that there is no scope for further cut since the bank neared the end of this rate cut cycle.
· The bank has already cut interest rates by a whopping 275 basis points
Economists argue that there is still scope for the Reserve Bank of South Africa to cut interest rates this year. While a section of economists put a reduction of interest rate by 25 basis points as the ideal one, there is another segment of fiscal experts who maintain the view that there is no scope for further cut since the bank neared the end of this rate cut cycle.
The bank has already cut interest rates by a whopping 275 basis points. This is in excess of the median of 100 basis points carried out by most of the emerging economies to kick start their economies after the pandemic. Apart from interest rate reduction, the apex bank is indulging in buying government bonds to bolster liquidity in markets, adjusting liquidity management and capital requirements for banks, and partnering with and commercial banks to assist industry, particularly small and medium enterprises. Apex bank has come out with a R200 billion loan guarantee scheme to enable banks to lend to the customers for tying down their liquidity crunch. As a result,
banks have loaned R10 billion making use of the loan guarantee scheme.
But a good number of fiscal experts feel that such cosmetic changes may have only minimum impact on the economy. They insist that structural reforms are needed to bailout the economy. Suggested measures in this regard include greater degree of privatization, public-private partnership, creating enabling situation for accelerated flow of investments both from within and outside etc.
Although the domestic economy contracted by only 2% during the first quarter of the year, the impact of the full blown lockdown imposed on March end is expected to cause contraction to the extent of 7% in GDP in 2020. The economy will rebound only by 3.8% in 2021. At this rate, it is expected that the economy is likely to touch a growth of pre Covid-19 days only by 2021-22.
