Reserve Bank of South Africa Cuts Repo Rate to 7.5% from 8.5%

May 28, 2009

Analysts had been divided over whether South Africa’s central bank would ease by 50, 75, or 100 basis points.  Officials chose the most aggressive action, cutting rates by a full percentage point for a fourth straight month.  An initial cut of 50 basis points was implemented in December when CPI inflation exceeded 10% versus 8.5% in March.  Cost-push pressures have tempered the speed of decline, but further deceleration is anticipated, since the output gap (shortfall of actual GDP from potential GDP if resources were fully employed) continues to widen and in light of a 13% year-to-date appreciation of the rand.  Real GDP slumped 6.4% at a seasonally adjusted rate last quarter and is projected to fall further, albeit not as steeply, in the second quarter.  The central bank statement can be viewed by clicking here.  Further easing of monetary policy is likely at future central bank meetings.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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