The African National Congress (ANC) has welcomed the SA Reserve Bank’s (SARB) decision to cut the repo rate by 100 basis points – but has called for further “radical measures” to support South Africa’s economy.
In a statement late on Tuesday, the ruling party’s spokesperson Pule Mabe said the decision will “contribute towards easing financial conditions and access to credit across the nation.”
SARB announced the surprise cut earlier on Tuesday in response to the economic impact of the COVID-19 outbreak, including the lockdown currently in place to contain its spread.
‘Large injections of liquidity’
Mabe said although the SARB’s decision was welcome, it may not be enough given the fact that the economy was already in recession before the outbreak.
He added, “In order to tackle COVID-19 head on, we have already witnessed other central banks embark on never seen before large injections of liquidity and low – sometimes negative – real interest rates.
“We, therefore, urge our central bank to use this period to further unlock radical measures to support the economy in this unprecedented crisis as seen in other middle income economies.”
This is the second time this month that the SARB has cut the repo rate significantly. In his statement on Tuesday, SARB Governor Lesetja Kganyago however warned that monetary policy alone will not grow the economy or reduce fiscal risks.
SARB’s decision on liquidity
“These should be addressed by implementing prudent macroeconomic policies and structural reforms that lower costs generally, and increase investment opportunities, potential growth and job creation,” he said.
In late March, the SARB also announced that it would buy government securities in the secondary market.
“[This] intervention is a financial market tool aimed at injecting liquidity into the market and ensuring a smoothly functioning market, rather than for economic stimulus purposes,” the SARB said in an explanatory note.
The ANC’s statement comes a week after its alliance secretariat, which includes the SA Communist Party and labour federation COSATU, issued a statement calling on the SARB to “play a vigorous developmental role towards the turnaround of the economy.”
The alliance secretariat said, “The Reserve Bank can fulfil this mandate directly and indirectly in collaboration with public development finance institutions (DFIs), in consultation with the National Treasury as provided for in our constitution.”
The Bank’s mandate has also been the subject of intense debate within the ANC and its alliance, with some calling for it to be expanded “beyond price stability to include growth and employment.”