The ANC welcomes the South African Reserve Banks (SARB) responsiveness to the emerging economic situation. The COVID-19 era has called upon governments and central banks to activate fiscal and monetary policy instruments as central tools to mitigate the effects of a contraction in economic activity.
Coronavirus and the lockdown measures intended to disrupt its spread, will have a negative impact on South Africa’s already struggling economy and public finances. This pandemic is the greatest public health and economic emergency ever to face humanity in peacetime history.
The current crisis required drastic responses from the public policy instruments and the actions of the SARB mirror our view that macroeconomic policy must act in the interest of the overarching goal of economic growth and development.
In this context, we welcome the decision by SARB to cut the repo rate by 100 basis points, or one percentage point. This brings South Africa’s repo rate to 4.25% effective from April 15. Our monetary policy is being geared towards lowering the cost of capital while supporting many vulnerable households and firms. This monetary policy stance will contribute towards easing financial conditions and access to credit across the nation.
Although greatly welcome, there is a likelihood that the decision alone will have a moderate impact on softening the impending blow to households and businesses, particularly small businesses. This is a crisis like no other. The probability of a global recession is now almost certain as the global economy is at a standstill. Ironically, this health pandemic finds the South African economy in an unhealthy recessionary state characterized by:
· low economic growth,
· high unemployment,
· declining productivity and manufacturing,
· widening budget deficits
· weak business, and private confidence, and
· declining household, private, government investment.
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.
As the ANC we are encouraged that the current macro-economic response is about saving distressed firms in as much as it is about saving distressed households and jobs. The government’s approach to interventions, both economic and social, will go a long way to support our economy. This also means that families, firms and households with weakened ability to repay credit are supported to be resilient during this crisis.
ISSUED BY THE AFRICAN NATIONAL CONGRESS
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