South Africa Finally Cuts Rates

20 July 2012 17:00 - Phoebe Robinson

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South Africa Finally Cuts Rates

South Africa has finally made the decision and the monetary policy makers have cut interest rates by 50 basis points. Though it comes as a bit of a shock the majority of analysts are showing concerns about the growth prospects of South Africa’s economy. The delicate balance act being performed by the South Africa Reserve Ban has been a hot topic amongst economists for the last few months. The bank has been weighing up inflationary pressures against a gloomy growth outlook.  There has been talk of the possibility of a rate cut as the effects of the eurozone crisis have been affecting the South African economy. The people who thought it was going to happen were in a minority so the cuts are surprising.

Inflationary pressures, it seems have been superseded by gloom over growth, not least because a third of South Africa’s manufactured exports go to Europe. Despite this it is also true that inflation has been easing. The consumer price index in Urban areas fell to 5.5% in June from a higher 5.7% the previous month. It is being said by forecasters that inflation will continue to fall and was expected to reach a low of 4.9% in the second quarter of 2013. And when it comes to cutting rates, South Africa is now catching up with others it has been behind, for example China, Brazil, India and European nations, that have been slicing rates as the global outlook has deteriorated.

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