Moody's Sees South Africa Rate Cuts Looming to Support Economy

(Bloomberg) -- Moody’s Investors Service sees South Africa’s central bank cutting its interest rate to support the economy.

The economy of Africa’s most-industrialized country will probably expand 1% this year and 1.5% in 2020, the ratings company said in its emailed global macro outlook document Thursday.

While the Monetary Policy Committee decided to maintain the repurchase rate at 6.75% in May, two of the five MPC members favored a 25 basis-point cut. The bank slashed the nation’s economic-growth forecast to 1% from 1.3% previously.

President Cyril Ramaphosa’s new administration, elected last month, faces the challenge of boosting confidence in the economy as it confronts a growing fiscal deficit and escalating debt that are risking South Africa’s final investment-grade credit rating at Moody’s. The economy shrank the most in a decade in the first quarter as mining and manufacturing contracted. Business sentiment remains subdued amid policy uncertainty and the absence of meaningful reforms.

“South Africa faces complex economic problems,” Moody’s said. “The task of reviving the economy will be challenging and reforms will take time to show effects.”

To contact the reporter on this story: Ana Monteiro in Johannesburg at amonteiro4@bloomberg.net

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Renee Bonorchis

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