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Knocking 1% off of our repo and interest rates is a big deal. SARB has acted without hesitation, in a bid to lift the economy from the coronavirus gloom.
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The South African Reserve Bank (SARB) have announced that they will drop the interest rate dramatically in South Africa to combat the economic impact of coronavirus. A 1% decrease has been announced. The repo rate now stands at 5.25%, with prime interest at 8.75%.
This marks the beginning of a series of financial measures which are designed to ease the immense pressure COVID-19 will have on this country’s fiscus. As clampdowns are implemented on social activities to limit the spread of the outbreak, businesses face a living nightmare. However, slashing the interest rate gives us several positives:
When rates on home mortgages and credit cards fall, the rates on other savings vehicles fall as well. Keeping interest rates at a low rate for an extended period of time can reduce the number of options the government has to stimulate the economy: The avenue eventually becomes a dead end.
These type of cuts have the potential to make it less attractive to save money in South Africa: A fall in the exchange rate makes our exports more competitive and imports more expensive. Thursday’s interest rate reduction dwarfs the 0.5% that was taken off back in 2012.
But these desperate times call for desperate measures, and on balance, this large decrease is a welcome move – and one which falls in line with the actions of the world’s economic superpowers. The United States (US) and Saudi Arabia have already implemented these measures as well.
SARB cuts interest rates by 1.00%
— Dylan Hilder (@dylanhilder) March 19, 2020
Prime = 8.75%
Repo = 5.25%