The South African Reserve Bank cut its benchmark repurchase rate cut by 50 basis points to 5.0 percent in an attempt to help the country overcome the challenges of a slower global economy and continued downside risks from Europe’s debt crises.
“Domestic inflation has continued its downward trend, and is expected to remain within the target range over the forecast period. However, despite some moderate employment creation over the past year, the economic growth outlook appears to be threatened by global developments and deteriorating domestic business and consumer confidence,” the bank said in a statement.
SARB had held its interest rates unchanged at 5.5 percent since November 2010 and economists had expected to bank to keep rates steady but signal a future cut.
The central bank said it had revised downwards its inflation forecast since its previous meeting, with inflation expected to peaked at 6.1 percent in the first quarter and then reach a low of 4.9 percent in the second quarter of 2013, averaging 5.6 percent in 2012 and 5.1 percent in both 2013 and 2014.
South Africa’s inflation rate eased to 5.5 percent in June from 5.7 percent in May. The central bank’s target since 2009 is to keep headline inflation in a range of 3-6 percent.
It said the domestic economy appeared to be slowing and it revised down GDP forecast for 2012 to 2.7 percent from 2.9 percent, and to 3.8 percent in 2013. In the first quarter annualized growth was 2.7 percent.
“The MPC is concerned about the increased downside risks posed to the domestic economy from global developments. 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. The negative spill-over effects to South Africa are likely to intensify,” the bank said, adding:
“This unfavourable outlook is reinforced further by the fragile domestic private sector investment and consumption trends which are confirmed by declining business and consumer confidence. The MPC therefore sees the risks to the growth forecast to be on the downside.”
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