SOUTH Africa’s central bank cut its key repo rate by 100 basis points to 11% on Thursday, taking the financial markets by surprise. The Reserve Bank said that its decision was based on the clearly discernible declining trend in inflation and projections from its Monetary Policy Committee that the CPIX index would be within its 6-3% in 2002. The repo rate has remained at 12% since it was raised by 25 basis points in October to warn speculators against taking positions against the volatile rand. In a statement released at the end of two-day MPC meeting, the central bank said there was still upside risk for inflation from the international price of oil, second round effects of the rand’s steep depreciation last year and continued rises in administered prices set by the government. The bank said the relative stability of the rand on a trade weighted basis during the first few months of 2001, and two consecutive quarterly surpluses in the current account were also a factors behind its unexpected decision. A Reuters poll last week showed that all 22 respondents believed the central bank would keep its repo rate steady at 12.00%, although there was some speculation it would unwind a 25 basis point hike in the rate last October. Prime lending rates set by commercial banks have been steady at 14.50% since January 2000. – Reuters