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S. African Reserve Bank cuts repo rates to 6.75 pct
Last Updated: 2017-07-21 07:37 | Xinhua
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The market was taken aback by the South Africa Reserve Bank (SARB) on Thursday when it cut the repurchase rate to 6.75 percent from 7 percent.

Many experts had predicted the Reserve Bank would leave the repo rates unchanged at 7 percent. The repo rate is the interest rate at which the SARB lends money to commercial banks. The cost of borrowing is now 10.25 percent.

South Africa Reserve Bank governor Lesetja Kganyago said the monetary policy committee, after three days of meeting, decided to reduce the interest rate, taking into account declined inflation in June, and sluggish economic growth.

South Africa's headline consumer inflation decreased more than expected to 5.1 percent year-on-year in June from 5.4 percent in May, data from Statistics South Africa showed on Wednesday.

"Despite a degree of volatility, the rand exchange rate has been relatively resilient in the face of expected monetary policy tightening in some advanced economies, as well as domestic political risks and uncertainties. Risks to the inflation outlook still remain," he said.

"The rand remains vulnerable to increased global risk aversion, domestic political shocks, and to the possibility of further ratings downgrades," he added.

Inflation peaked at 6.4 percent in the first quarter of 2017, in line with the Bank's earlier projections, he said.

The governor was still concerned by the outlook for economic growth, which confirmed has worsened. In the first quarter 2017, South Africa entered into a technical recession.

"The economy has now recorded two successive quarters of negative growth, and although a near-term improvement is expected, the outlook remains challenging," he noted.

While positive growth is expected in the second quarter, the Bank's annual growth forecasts have been revised down further. The forecast for 2017 has been adjusted down from 1.0 percent to 0.5 percent, and the forecast for 2018 is down from 1.5 percent to 1.2 percent.

Growth of 1.5 percent is expected in 2019, compared with 1.7 percent previously, according to the South African Reserve Bank.

The last rate increase was 25 basis points in March 2016, and followed a 50-point rise in January 2016.

"In this highly uncertain environment, future policy decisions will be dependent on data outcomes and our assessment of the balance of risks," Kganyago said.

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