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South Africa: SA Reserve Bank Has Scope for Another Interest Rate Cut This Week

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The South African Reserve Bank has scope for another rate cut at its final 2020 Monetary Policy Committee meeting this week, which will end with the policy statement being read by Governor Lesetja Kganyago on Thursday. The consensus is that it will hold the repo rate steady at 3.5%, but conditions are generally ripe for further loosening.

After slashing its key lending rate by 300 basis points to 3.5% in 2020, the South African Reserve Bank (SARB) finds itself in an unusual position. It has scope for yet another rate cut, even in the face of a strongly rebounding economy.

The case for a cut is backed by a range of data. Consumer inflation, or CPI, slowed to 3% in September from 3.1% in August, the very bottom of the SARB’s 3%-6% target range — and the inflation outlook is generally subdued. Oil prices remain depressed and are expected to stay that way, with accountancy firm PwC forecasting that demand for the fossil fuel will never again reach 2019 levels. Meanwhile, political uncertainty in the US over the election result and Donald Trump’s dangerous behaviour have rattled the dollar, which in turn is supportive of the rand, as are other…

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