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MPC joins coordinated global push to lower policy rate

In a responsive move that recognises the dramatic recent deterioration in the global and SA GDP outlook,the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) reduced the repo policy interest rate by 100 bps. The MPC had to balance a dramatic deterioration in both the global and domestic growth outlook, as well as benign inflation prospects, against an equally dramatic sell-off of domestic equities and bonds in recent weeks.

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The FNB/BER Civil Confidence Index rose for the fourth straight quarter in 2020Q1. However, at 24, the index still signifies that the majority of civil contractors are dissatisfied with prevailing business conditions.

During the first quarter of 2020, the seasonally adjusted Absa Purchasing Managers’ Index (PMI) experienced the weakest quarterly performance since 2009. The PMI averaged at 45.9 index points, compared to 47.6 in the fourth quarter of 2019. The weak quarterly outcome was despite the PMI improving to 48.1 index points in March from 44.3 index points in February. Nonetheless, the PMI still remained in contractionary terrain for a fourteenth straight month.

The RMB/BER BCI slumped by eight points to 18 in the first quarter of 2020 - a 21-year low. Persistent demand weakness, load shedding, bailouts of struggling SOE’s, the deterioration in the government’s finances and the spreading of the coronavirus around the globe all played a role. January’s 25 basis point interest rate cut was a small positive, but not enough to compensate for the negative developments. Since the survey was completed in early March, things have gone from bad to worse on the global front. The RMB/BER BCI will in all likelihood continue to trend lower in the period ahead, with obvious negative consequences for private sector fixed investment.

The FNB/BER Consumer Confidence Index (CCI) declined by a further 2 points. The time-to-buy sub-index plunged to a 33-year low. High-income earners’ confidence dropped to a 20-year low. The low confidence of the high-income group does not bode well for retail sales in general and durables goods in particular. Non-durable goods will continue to benefit from the stable confidence of low- and middle-income earners.