The South African Reserve Bank's (SARB's) Monetary Policy Committee on Thursday decided to reduce the repo rate by 100 basis points to 8.5 percent.

This was in line with consensus expectations and takes the prime overdraft rate in South Africa to 12 percent from 13 percent before, and will usher in further relief for cash-strapped consumers.

SARB Governor Tito Mboweni said that the severe, synchronised downward trend in domestic and global economic conditions and notwithstanding higher than expected local inflation outcomes, had tilted the balance on the inflation outlook on the downside over the medium term.

"There are no indications of a quick recovery in SA," said Mboweni.

He said the negative conditions detected in the fourth quarter persisted in the first quarter and the outlook for manufacturing remains negative.

He said it is now expected that the slowdown will be severe and protracted and recovery gradual.

"The growth outlook is dependent on the broader global economic recovery," he said.

Mboweni said that while inflation in SA "remains sticky", it is expected to continue on its downward course and average 5.4 percent at the end of forecast period at end Q4 2010.

He said administrative prices and the higher February CPI outcome had been factored in and led to the slightly higher forecast.

"Wage settlements have edged up slightly," said Mboweni, but he added that the downward food price trend was "encouraging".

He also noted that the recent appreciation of rand - if sustained -may have reduced upside risks to the inflation outlook. He also pointed to a decline in the volatility of the rand.

The rate-cutting cycle began in December last year and most economists feel this should amount to 450 basis points in total, taking the repo rate to a bottom of 7.5 percent. Two further cuts of 50 basis points each are expected at the upcoming two monthly meetings, with a pause expected thereafter.