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Let the rates roll!

The Monetary Policy Committee of the South African Reserve Bank decided to reduce the central bank's repo rate by 50 basis points to 7.0 percent, Governor Tito Mboweni announced on Thursday.

Economists react to the rates decision:

Mike Schussler, Economists.co.za:

"This is a positive surprise — but not what I was expecting. It now leaves less room for further cuts this year.

"It should be good for the equity markets, but the rand might come under pressure as our interest rates are looking a bit low given our inflation outlook for the end of the year and early next year."

Freddie Mitchell, Efficient Group:

"This comes as a bit of a surprise as we are in the upper limits of an inflation target range.

"The production figures that came out yesterday had a great deal to do with this announcement."

Carmen Altenkirch, at Nedbank:

"The recent weakness in economic data combined with poor prospects for economic growth were the main reasons behind the Reserve Bank's decision to provide the economy with further interest rate relief. This is certainly good news, but does highlight how very weak the local economy is.

"We still expect a further cut this year, possibly in September or October. Economic data will still look fairly poor then, and the inflation outlook would have improved as well, giving the Governor some further scope to cut rates."

Elize Kruger, KADD Capital:

"A welcome decision in the light of the strain that is still evident in the real economy, especially related to escalating job losses. The positive impact of the long-awaited moderation in food prices on the inflation outcome and outlook, together with this week's weak data on manufacturing and retail sales give ample justification for today's decision.

"However, given that we have probably reached the lower turning point in economic growth in Q1 2009, this could have been the last cut in this cycle. However, interest rates could potentially stay at this low level for the remainder of 2009 and 2010."

Jacques du Toit, Absa Retail Bank:

"Mortgage repayments will now be 26.3 percent lower compared with late last year, based on the interest rate cuts since December, when the mortgage rate was at a level of 15.5 percent.

"The lower interest rates are providing some further relief to a still heavily indebted household sector, while improving the affordability of housing. Total household debt as a percentage of disposable income was at 76.7 percent in the first quarter of 2009, while outstanding household mortgage debt was just below 50 percent of disposable income in the quarter."

Kgotso Radira, Investec Group Economics:

Today's interest rate cut will provide additional relief to the debt- stricken households and boost business and consumer confidence. This is key to the recovery process from a recession. We believe this is likely to be the last interest rate cut in the cycle, but much will depend on future economic data.

Peter Attard Montalto, Nomura:

"This is a very big surprise. But more concerning is that neither the statement nor the Q&A really explains that much about the reasons for cutting, save for the fact they see the risks to the inflation outlook tilted to the downside.

"Through most of the statement Mboweni talked about the upside risks to inflation and more optimistic global outlook. He also hinted that they were still looking at inflation out to end of 2011 so there was no change of forecast horizon to look more at current data (though this could have happened for some members). They seem to have flipped from looking at headline inflation to some form of 'ex-cost-push' inflation where the risks are to the downside, but overall the communication at this meeting has not been good.

"I would say this was the last cut in the cycle, and indeed that they shouldn't cut again given the 'headline' inflation outlook to remain very sticky, but after today's surprise and with ex-cost-push inflation set to fall further it really is very hard to say."

Adenaan Hardien, Cadiz:

"Today's cut raises the prospect of rates being tightened sooner than might otherwise have been warranted. We don't expect further easing after today, and chances are that the MPC will start hiking rates sometime over the first half of 2010."

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