South African Reserve Bank Holds Rate, Now Expects GDP to Shrink 8.2% in 2020

By Gabriele Steinhauser

JOHANNESBURG--The South African Reserve Bank on Thursday kept its main repo rate at 3.5%, even as it forecast that Africa's most developed economy will shrink 8.2% this year.

The bank's fresh forecast for 2020 is more pessimistic than the 7.3% contraction in gross domestic product it predicted in July.

South Africa's GDP shrank at an annualized 51% in between April and June, marking the worst quarter on record and one of the deepest contractions among major economies.

SARB Governor Lesetja Kganyago said he expects economic activity to have picked up in recent months, as lockdown measures have been eased. But the governor warned that a return to pre-pandemic levels will take some time.

The bank said it expects GDP to grow by 3.9% in 2021 and 2.6% in 2022.

The SARB has already cut its repo rate by three percentage points since January. "Monetary policy however cannot on its own improve the potential growth rate of the economy or reduce fiscal risks," Mr. Kganyago said, reiterating calls for the government for economic overhauls that would attract investment, boost GDP growth and job creation.

"Such steps will enhance the effectiveness of monetary policy and its transmission to the broader economy," he said.

Mr. Kganyago said the bank's monetary policy committee expects consumer-price inflation to remain below the midpoint of its 3% to 6% target range in the medium term.

Two of the monetary policy committee's five members voted for a 0.25 percentage point reduction in the rate, Mr. Kganyago said.

President Cyril Ramaphosa on Wednesday announced that South Africa was reopening its borders, which had been closed since late March, for international travel from Oct. 1 and ease other restrictions on social gatherings. Coronavirus infections in the country have fallen in recent weeks, to 1,923 new cases of the virus detected on Wednesday--down from more than 15,000 daily cases during a July peak.

South Africa has recorded 653,444 coronavirus infections, more than any other African country.

Write to Gabriele Steinhauser at [e-mail]