Pretoria - South Africans, hard-hit by the increasing cost of living under the current economic climate, have been granted reprieve by the Reserve Bank which announced a 100 basis points cut in the repo rate on Tuesday.
"The Monetary Policy Committee has decided to reduce the repurchase rate by 100 basis points to 9.5 percent per annum with effect from 25 March 2009," Reserve Bank Governor Tito Mboweni said following the latest committee meeting in Pretoria.
The economy has continued to weaken significantly in recent months, with growth in the mining and motor manufacturing sectors slowing as a result of the global economic recession.
South Africa's Gross Domestic Product figure contracted by 1.8 percent in the third quarter of last year.
"The South African economy has not escaped the impact of these developments. Domestic production has contracted as a result of weak domestic demand and a significant decline in export demand," he explained.
On whether the country would avoid the global financial crisis, the governor said: "There is a possibility that we might experience two consecutive quarters of negative growth which among economists is defined as a recession."
However, he said it would "not be the end of the world", saying that there would be a slight dip and then a pick up.
The Governor emphasized that South Africans should not get the wrong impression that rates would be cut every time the MPC meets. "If anybody takes that position they'll be a fool," said the governor.
The Reserve Bank last announced that the MPC would be meeting monthly, instead of bimonthly.
Mr Mboweni explained that the change of pace in financial condition required more meetings.
Director for the Bureau for Economic Research (BER) Professor Benjamin Smit said the 100 basis point cut was expected and would be beneficial for home owners who are paying off a bond.
"It was clear that South Africa needed to follow through with some response in line with what's happening internationally."
However, he said more interest cuts were needed.
Nedbank economist Isaac Matshego said that indebted South Africans would be glad to hear of the cut.
"Clearly there is space to breathe when coming to income. People with debt are going to start paying less," said Mr Matshego.
