The Reserve Bank's Monetary Policy Committee announced a 100 basis point cut in the repo rate on Wednesday and banks have begun to lower their interest rates to 13,5 per cent.

The Reserve Bank's Monetary Policy Committee announced a 100 basis point cut in the repo rate to 10 per cent on Wednesday and banks have begun to lower their interest rates to 13,5 per cent.



The repo is the rate at which the Reserve Bank lends to commercial banks. Standard Bank became the first of the big banks to match the Reserve Bank cut. Its home loan and prime lending rates are now 13,5 per cent, down from 14,5 per cent.


This is the third time the Reserve Bank has dropped its rates this year: The previous cuts were by 150 basis points in June and by 100 basis points in August.


Analysts believe Wednesday's move could be followed by another 1 percentage point interest rate cut in October or December. In that case, the interest rate should be 12,5 per cent by the end of the year and remain flat for most of 2004, analysts say.


The Reserve Bank surprised the market on Friday when it announced a special sitting of the MPC. The committee met barely four weeks ago and reduced rates by 1 percentage point, following a 1,5 percentage point cut in June, and is due to meet again on October 15 and 16.


Pieter Haasbroek, the group economist at Barloworld, said the downswing in the manufacturing and the export sector of the economy had finally hit home: "The government has prided itself on turning the motoring sector into a vibrant export business and would like to see this maintained."


But Dawie Roodt, the chief economist at Efficient Group, said the Reserve Bank should guard against cutting rates too aggressively as this might reduce the likelihood of South Africa moving into an environment of sustained low inflation.


Brait economist Colen Garrow said the statement released by the MPC after the meeting would be critical to determine whether there would be cuts after today: "We will also be guided by what happens to the rand. There is no point in having a strong currency when manufacturing, exports and government's finances are under pressure.


"The current account deficit is being financed by volatile portfolio flows and, if this dried up, the rand would again come under pressure," he told .

Original article from Car