Cape Town - The rand took a knock on Thursday after the SA Reserve Bank (SARB) surprised the market with a 25 basis-point cut in interest rates.
This means that the repo rate, the rate at which the SARB lends money to commercial banks, is reduced from 7.00% to 6.75% and the prime lending rate changes to 10.25%.
SARB governor Lesetja Kganyago stated that inflation remains a risk and has revised growth for the economy lower to 0.5% for 2017.
He said given the deteriorated growth outlook, the repo rate will be reduced by 25bps to 6.75% per annum.
The decision was not unanimous, with four members preferring a reduction to two members taking a stance for rates to stay unchanged.
Kganyago also saw inflation as staying within the 3% to 6% target band until 2019.
Statistics SA announced on Wednesday that the consumer inflation index for June eased to 5.1% from 5.4% in May.
TreasuryOne said in a snapnote to clients that growth will remain challenging going forward, and South Africa could see more interest rate cuts at the next monetary policy committee meeting in September 2017.
The rand, which was trading on the front foot for most of the week, briefly lost some ground, moving back to R13.00/$ immediately after the rate cut announcement. By 15:50 it was trading at R13.04 to the greenback. Before the announcement the local unit was trading R12.97/$. It opened trading at R12.91.
- READ: Surprise cut in rates
SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.