Repo rate cut by 50 basis points to 11.5%

The Reserve Bank has cut its repo rate by 50 basis points to 11.5%, effective tomorrow. Banks are expected to follow the Reserve Bank’s lead by cutting lending rates in sympathy.

The prime overdraft rate is thus expected to be cut by 50 basis points to 15%. The governor noted that the MPC had discussed the prospect of a cut of 100 basis points, a move that was favoured by two MPC members.

The MPC disclosed an improvement in its inflation outlook since its last meeting, with targeted consumer inflation expected to fall within the target by the third quarter of 2009, average 6.2% in 2009 and average 5.6% in 2010.  At its October meeting the MPC expected CPIX inflation to fall to within its target in the second quarter of 2010 and average 6.9% in 2009.  The MPC sees the rand as the key upside risk to inflation.  However, the MPC noted a number of downside risks to inflation, including lower oil and food prices, a widening negative output gap and very weak household consumption expenditure.

'This is the start of the rate cutting cycle and I'd expect the MPC to continue cutting in 50 basis points increments at subsequent meetings in 2009,' said Adenaan Hardien, Chief Economist at Cadiz African Harvest Asset Management.