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South Africa Central Bank Cuts Rates Again; Signals More Easing Ahead

South Africa's central bank reduced interest rates for a fourth consecutive session and signaled more easing ahead as it expects a sharp economic contraction this year, due to the disruption caused by the coronavirus, or Covid-19, pandemic.

The Monetary Policy Committee decided to cut the repo rate by 50 basis points to 3.75 percent, the South African Reserve Bank said in a statement. The decision was in line with economists' expectations.

The decision was taken in a split vote with three members preferring a 50 basis point cut, while two policymakers sought a quarter-point reduction.

In April, the bank had cut the rate by 100 basis points. The SARB has reduced the rate in each policy session thus far this year, starting January.

"The implied path of policy rates over the forecast period generated by the Quarterly Projection Model indicates two repo rate cuts of 25 basis points in the next two quarters of 2020," SARB Governor Lesetja Kganyago said.

The next policy announcement is scheduled for July 23.

The SARB lowered its GDP forecast for this year and now expects a 7 percent contraction versus 6.1 percent predicted in April.

Investment, exports and imports are expected to decline sharply in coming months and job losses are expected to increase even after the lockdown in withdrawn, the bank said.

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, the bank said, adding that getting back to pre-pandemic activity levels will take time.

The central bank expects GDP to grow by 3.8 percent in 2021 and by 2.9 percent in 2022.

Headline consumer price inflation is forecast to average 3.4 percent this year and 4.4 percent in 2021 and 2022. Core inflation is seen lower at 3.5 percent this year and 3.8 percent in 2021, and 4.1 percent in 2022.

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