The South African Reserve Bank cut its repo rate by 50 basis points to 6% as expected on Thursday to give further boost to a stuttering economic recovery.
The lowering brings interest rate reductions since December 2008 to 600 basis points and takes borrowing costs to a new three-decade low.
The Reserve Bank said inflation was contained and the economy is likely to moderate further.
Previous monetary stimulus has helped to raise consumer spending a bit but the outlook is weak as households remain highly indebted.
The supply side of the economy is also struggling, with factory output growth slowing to 7,5% year-on-year in July compared with June’s 9,3%.
A firmer rand currency, high input labour and electricity costs are expected to weigh on production prospects in the next few months.
Thami Bolani, chairperson of the National Consumer Forum, said consumers would welcome the cut and should use the opportunity to pay off their debts.
Freddie Mitchell, economist at the Efficient Group, said the cut was not surprising, given the data out of the second quarter.
“Like the governor said, the scope for interest rate cuts is getting narrower, I don’t thing we’ll see another cut this year.”
Nomava Zanazo, an economist from Pan-African Capital Holdings, said while they had expected the cut, they would have preferred a 100 basis point cut “given the benign inflation [and] the bleak GDP number we saw recently”. – Reuters, I-Net Bridge