Lockdown muted Reserve Bank policy impact, Kganyago says

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The lockdown of the South African economy means that policy measures announced by the central bank have not filtered through yet, Governor Lesetja Kganyago said.

The Reserve Bank has cut its repurchase rate by 275 basis points this year, the fifth-biggest downward move by global central banks, according to data compiled by Bloomberg. The benchmark is now at 3.75%, the lowest level since it was introduced in 1998.

Kganyago’s comments came just before President Cyril Ramaphosa announced the government will further relax lockdown rules from June 1. South Africa imposed one of the strictest shutdowns in the world on March 27. That shuttered all economic activity except essential services for five weeks, and was only partly eased from May 1.

"Our adjustment of the repo rate benefits borrowers; if you don’t have debt, you’re not going to benefit from an adjustment in the repo rate," Kganyago said in a webinar on Sunday. We could “say that it stimulates demand and then because it stimulates demand more goods are produced and so forth, but if you are providing this and the economy is locked down, you don’t see the effect of it,” he said.

The Reserve Bank has relaxed accounting and capital rules to release additional money for lending and more than doubled its holdings of South African government debt, helping to bring down borrowing costs in the domestic bond market.

Providing support

While the monetary-policy measures implemented by the central bank are temporary in nature, it is not yet considering the conditions that would allow for them to be withdrawn, Kganyago said. “What is important for us is to provide this support for the economy,” he said. The bank was able to respond to the crisis as it had monetary policy buffers in place when the virus hit.

Gross domestic product is now projected to contract 8.5% this year due to the virus and the lockdown, Sim Tshabalala, chief executive officer of Standard Bank Group, said on the webinar. South African lenders’ revenue will decline and bad debts will increase, he said.

"A large proportion of our customers have not been paying their debts as before," Tshabalala said. "Naturally that’s because they are no longer working. Small-to-medium enterprises are closed so they are unable to pay and even some corporates are finding themselves in some difficulties."

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