May 21, 2020 / 1:29 PM / 2 months ago

South African central bank cuts lending rate by 50 basis points

South African Reserve Bank governor Lesetja Kganyago listens during an interview in New York City, in New York, U.S. November 9, 2017. REUTERS/Shannon Stapleton - RC17196BEFF0/File Photo

JOHANNESBURG (Reuters) - South Africa’s central bank cut its main lending rate by 50 basis points to 3.75% on Thursday, in an effort to shield the economy from the impact of the new coronavirus.

The central bank expects gross domestic product to contract by 7% in 2020. The latest rate cut will help ease pressure on consumers amid widespread job losses, it said.

The bank’s five-person monetary policy committee was split 3-2, with three members voting for the 50-bps cut and two for a 25-bps reduction. A poll by Reuters last week had predicted the 50-bps move. [nL8N2CV5SL]

The rand extended gains in response to the decision, and at 1335 GMT the currency was up 1.8% to 17.6050 per dollar, its best level in more than a month.

Governor Lesetja Kganyag said consumer inflation would remain well below the midpoint of the regulator’s target range of 3% to 6% this year, despite higher levels of country financing risk.

“Easing of the lockdown will support growth in the near term and some high frequency activity indicators show a pickup in spending from extremely low levels. However, getting back to pre-pandemic activity levels will take time,” Kganyago said.

“Monetary policy however cannot on its own improve the potential growth rate of the economy or reduce fiscal risks.”

The central bank has been under pressure to do more to support the economy, with some politicians wanting it to buy bonds directly from the government.

Reporting by Mfuneko Toyana and Olivia Kumwenda-Mtambo; editing by Alexander Winning, Larry King

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