South Africa’s central bank slashed its key interest rate for a fifth policy session in a row and signaled that the rate will be reduced one more time in the final quarter of the year, as it expects the economic contraction due to the Covid-19 pandemic to be more severe than forecast earlier.

The Monetary Policy Committee decided to cut the repo rate by 25 basis points to 3.50 percent, the South African Reserve Bank said in a statement on Thursday. The decision was in line with economists’ expectations.

Three policymakers favored the 25 basis points cut, while two wanted to leave the rate unchanged.

“The implied path of policy rates over the forecast period generated by the Quarterly Projection Model indicates one repo rate cut of 25 basis points in the fourth quarter of 2020, remaining unchanged in the first quarter of 2021,” SARB Governor Lesetja Kganyago said.

The next policy announcement is scheduled for September 17.

The central bank lowered its growth forecasts. The SARB now sees a 7.3 percent decline in the gross domestic product this year versus a 7 percent fall projected in May. The bank expects the economy to grow 3.7 percent next year and 2.8 percent in 2022, both figures were a tad lower than earlier forecasts.

The average inflation forecast for this year was left unchanged at 3.4 percent, while the figure for the next two years was lowered to 4.3 percent from 4.4 percent.

The core inflation projection for this year was cut to 3.3 percent from 3.5 percent. The forecast for next year was raised to 3.9 percent from 3.8 percent and the outlook for 2022 was left unchanged at 4.1 percent.

The material has been provided by InstaForex Company – www.instaforex.com