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Marcus: Rate cut right thing to do

Jul 19 2012 16:21 Reuters

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Pretoria - South Africa's Reserve Bank unexpectedly cut its repo rate by 50 basis points to a record low of 5.0% on Thursday, citing a weak outlook for Africa's biggest economy against inflation that is likely to stay within target for an extended period.

The bank said the domestic economy appeared to be slowing further, resulting in a cut in its 2012 growth forecast to 2.7% - in line with the Treasury's forecast - from the 2.9% seen in May.

"Given the possibility of a more widespread global downturn, the risks to this forecast are seen to be on the downside, with the external impact coming through trade links and commodity prices," Reserve Bank Governor Gill Marcus told a news conference.

"The monetary policy committee views the prevailing conditions to be appropriate for further monetary accommodation to the economy that will not undermine the inflation outlook," she said.

Inflation was expected to continue to moderate over the next few quarters, reaching a low of 4.9% in the second quarter of 2013. It was then expected to remain fairly stable around the 5 percent level to the end of 2014.

Twenty-one of 23 economists polled by Reuters last week expected the Monetary Policy Committee to keep the repo rate, at which it lends to commercial banks, unchanged.

Only two of the economists polled saw a 50 basis point cut.

Prior to Thursday's move, the bank had kept rates steady since 2010 and the majority of economists polled had ruled out a cut this year.

The Reserve Bank is scheduled to hold two more policy meetings this year, in September and November.
sarb  |  gill marcus  |  repo rate  |  interest rates  |  sa economy
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