Mboweni cuts rates as inflation risks recede  

THE Reserve Bank cut interest rates by half a percentage point yesterday, citing an improved inflation outlook, the effect of the global slowdown on SA’s economy and the “distress” of many consumers. The first cut in the repo rate in more than 3½ years had been widely expected, but disappointed those hoping for a full percentage point cut.

Governor Tito Mboweni told reporters that a more aggressive move was discussed but not adopted by the monetary policy committee because of inflation risks posed by rand weakness and rising labour costs.The decision to cut the repo rate to 11,5% was taken despite an inflation rate of 12,4% in October, more than twice the upper end of its 3%-6% target range. But it is down from a record 13,6% in August.

Mboweni said the Bank now expected inflation to return to the target range by the third quarter next year. At the committee’s previous meeting, in October, the Bank predicted inflation would be back inside this range only in the second quarter of 2010.Mboweni said that two of the committee’s seven members had advocated a full percentage point rate cut, which supports the view that more interest rate cuts are in the pipeline.

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Mariam Isa, www.businessday.co.za, 12 December 2008