[Eric S Doms]

The South African Reserve Bank's (SARB's) Monetary Policy Committee (MPC) on Thursday decided to reduce the repo rate by 100-basis-points to 10.5 percent.

This was in line with consensus expectations. Of the 14 economists polled by I-Net Bridge, nine were expecting a 100-basis-point reduction, while four were expecting a cut of 50-basis-points. One outlying economist had gone as far as predicting a full 150-basis-point cut.

This takes the prime overdraft rate in SA to 14 percent from 15 percent before and will usher in significant relief for cash-strapped consumers.
Interestingly, Mboweni said he had recommended a cut of 200-basis-points to the Committee after returning from the World Economic Forum in Davos.

“They probably thought it was the snow, but I went in there all guns blazing,” he said.

Mboweni also sketched a bleak picture of the economy, saying there will be a “rough patch” over the next two, three or four years and had a stern message for politicians who were telling their supporters otherwise. This comes just ahead of SA's own election around April.

“Any politician who does not communicate that reality to their supporters is living in cloud-cuckoo land. There is no decoupling and there is nothing special about SA - it is part of the global economy,” emphasized Mboweni.
“We must conduct ourselves in the manner that we are part and parcel of the global economy,” he added.

He said the domestic economy was adversely affected by continuing turbulence in the global economy and that this would place further downward pressure on inflation going forward.

Mboweni said that the inflation declining trend was continuing and that the central bank had factored in the changes to be brought about by a new CPI basket from next month.

But he also noted that some risks to the inflation outlook remain.
He said the MPC forecasts CPI inflation to average 7.5 percent in the first quarter of 2009 before declining to below the upper end of the 3-6 percent target range during the third quarter at an average of 5.2 percent.

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