“The South African Reserve Bank’s (SARB’s) surprise decision to cut interest rates by another 100 basis points is a welcome move. This will help to support the South African economy as it grapples with a rapidly deteriorating situation as a result of the extended Covid-19 lockdown.”

This is according to Prof Raymond Parsons, a well-known economist and academic from the North-West University (NWU) Business School.

“In these unprecedented economic circumstances a cardinal maxim for the monetary authorities is to act promptly. The SARB announcing a substantial pre-emptive reduction in the repo rate, and hence facilitating a marked relief in borrowing costs, means that monetary policy is playing its part in helping to sustain business and consumer confidence,” he adds.

According to Prof Parsons monetary policy must nevertheless remain responsive to an economy in which the “output gap” is steadily widening and where inflation is not an immediate threat.

“It is therefore also welcome that the SARB’s Quarterly Projection Model (QPM) is being recalibrated to take account of the changed economic dynamics. Current forecasts of GDP growth in South Africa in 2020 are now between -5% and -7%, and that job losses in the formal sector could be as high as 400 000. It is now inevitable that South Africa will experience a recession this year.”

On the positive side, he says the SARB still expects a modest economic upturn in 2021.

“Its extent, however, will depend on how rapidly the global economy recovers, on whether there are repeated waves of coronavirus later in the year, and on how long the lockdowns in South Africa and other countries will last.

“The degree to which other economic supportive measures in South Africa are rapidly and effectively implemented, will also shape the rate of South Africa’s economic recovery and its growth performance next year. There remain downside risks. Monetary policy must remain proactive where necessary.”