South African Reserve Bank cuts repo rate to 5%

The South African Reserve Bank has offered some relief to the domestic economy by cutting the repo rate 5.5 per cent to 5.0% with effect from 20 July, 2012.

On the back of improved inflation figures and no end in sight for the eurozone crisis, the Reserve Bank surprised economic analysts when it slashed the repo rate (the rate at which the Reserve Bank lends to commercial banks) by 50 basis points on Thursday for the first time in months.

"While I recognise that such a move on its own will not overcome the challenges facing the economy, it is felt that it can help alleviate some of the pressures faced by some sectors," said Reserve Bank governor Gill Marcus.

She said the committee felt it was important to be proactive and look at ways to minimise global spill-overs and impacts to South Africa.

Rashad Cassim, head of the Reserve Bank’s research department, said the committee felt the rate cut was one instrument which could provide some stimulus to the economy. Since the previous committee meeting there have been further indication of a generalised slowdown in the global economy, amid the continuing risks posed by the banking and sovereign debt crisis in the eurozone.

"The problems in the eurozone are likely to persist for a protracted period and since the previous meeting the negative growth outlook has spread beyond Europe, in particular to the US, China, India and other emerging market economies," Marcus said.

"The negative spill-over effects to South Africa are likely to intensify."

The committee expect inflation to remain within the target range (between 3 and 6%) over the forecast period and sees the risks to the inflation forecast to be relatively balanced.

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