Reserve Bank cuts repo rate by 50 basis points

2010-11-18 14:32

The South African Reserve Bank had cut the repo rate by 50 basis points to 5.5%, governor Gill Marcus announced today.

The prime rate would fall to 9%.

This was the lowest it had been in 30 years, Marcus told a media briefing.

The decision to lower rates was based on various factors, including an improved outlook for domestic inflation.

“Since the previous meeting of the Monetary Policy Committee, the outlook for domestic inflation has improved further against the backdrop of a continued negative domestic output gap and sustained strength in the exchange rate of the rand,” said Marcus.

“Persistently low growth in the United States and renewed quantitative easing, combined with renewed concerns about the solvency of some euro zone countries, are expected to prolong the current environment of low global interest rates and continued capital flows to emerging market economies.”

Although there was some risk of an increase in domestic inflation, Marcus said “the overall risks to the inflation outlook are assessed to be fairly evenly balanced”.

The governor said they expected an average inflation rate of 4.3% for 2010.

This fell within the target range of 3% to 6%.

“Inflation is then expected to remain at an average of 4.3% in 2011 and to increase to 4.8% in 2012,” she said.

The cut was in line with market expectations.

According to a Reuters poll, 16 of 21 economists forecast a 50 basis points cut in the repo rate.

According to a Bloomberg poll, 17 out of 22 economists expected a 50 basis points cut in the repo rate.

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