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18.07.2019 South Africa

S.Africa cuts interest rates to shore up weak economy

Low interest rates tend to spur economic activity and growth.  By Phill Magakoe (AFP/File)
LISTEN JUL 18, 2019
Low interest rates tend to spur economic activity and growth. By Phill Magakoe (AFP/File)

South Africa's central bank on Thursday cut its key interest rate for the first time since March 2018 as it sought to boost the contracting economy.

The South African Reserve Bank's (SARB) monetary policy committee unanimously decided to reduce the repurchase rate by 25 basis points," cutting it from 6.75 percent to 6.5 percent, governor Lesetja Kganyago said.

It joins a string of central banks across emerging markets that have reduced borrowing costs in recent months including Chile, Malaysia and India.

South African retailers have reported poor sales figures as indebted consumers held back from spending.

The country's economic output contracted by 3.2 percent in the first quarter of 2019 due to electricity shortages and strikes that fed into weak investment and household consumption.

Kganyago welcomed the continued downward trend in inflation, currently at 4.5 percent, but warned that global risks, low business confidence and domestic politics remained a risk.

The central bank has been at the centre of political tensions with some among the ruling ANC party saying it does not do enough to address social challenges such as near-record unemployment of over 27 percent.

The SARB cut its forecast for economic growth this year by four tenths of a percentage point to 0.6 percent.

It left unchanged its outlook for GDP growth in 2020 and 2021 at 1.8 percent and 2.0 percent respectively.

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