South Africa cuts interest rates
14 August 2009
The South African Reserve Bank has cut its repo rate by 50 basis points. The repo rate – the rate at which the Bank lends to the country's commercial banks – now stands at seven percent, bringing SA's prime interest rate down to 10.5%.
Speaking after the Bank's monetary policy committee meeting in Pretoria on Thursday, Governor Tito Mboweni said there were "encouraging signs that the global slowdown may have reached its lower turning point, although the speed and extent of the recovery are still subject to a high degree of uncertainty."
He said South Africa seemed to be lagging behind international developments, and that it was likely that the domestic economy had contracted in the second quarter.
"The domestic economy remains constrained by weak global and domestic demand," he said.
Inflation
Turning to inflation, the governor noted that targeted inflation declined materially in June but was still outside the inflation target range of the Bank.
"Expectations are that it will take some time before inflation returns to within the target range on a sustainable basis," Mboweni said, adding: "Cost push pressures appear to be the main source of upside risk to the inflation outlook."
He noted that the year-on-year inflation rate as measured by the consumer price index for all urban areas had declined from 8.0% in May 2009 to 6.9% in June, while producer prices had declined at a year-on-year rate of 4.1% in June, compared with a decline of three percent in May.
Turning to the outlook for inflation, he said the Bank's most recent forecast remained "more or less unchanged" compared with the previous forecast.
"However, CPI inflation is still expected to continue its moderate downward trend and to enter the target range during the second quarter of 2010, and to remain within the target range for the rest of the forecast period ending 2011," Mboweni said.
He said these projections were broadly in line with the Reuters consensus survey of private sector analysts.
World economic outlook
Mboweni noted that the outlook for the international economy appeared to have improved. "The cautious optimism that the bottom of the cycle may have been reached continues to prevail, although some analysts still doubt the strength and sustainability of this recovery."
He said the recovery was also not expected to be uniform across countries or regions.
According to the July 2009 World Economic Outlook of the International Monetary Fund, global output was expected to contract by 1.4% in 2009 before recovering to 2.5% in 2010, Mboweni said.
Developed economies were expected to grow by 0.6%, while growth in emerging economies was expected to average 4.7% in 2010.
The governor said global inflation appeared to be under control, despite the significant monetary accommodation in a number of advanced economies.
However, he added that domestic economic conditions remained subdued amid indications that the economy contracted further in the second quarter of 2009, "although at a slower rate of contraction than in the previous quarter".
Sapa
