SA's repo rate has been cut by 50 basis points -- or half a percentage point -- following the meeting of the Monetary Policy Committee of the SA Reserve Bank, Governor Tito Mboweni said on Thursday.

The repo rate is now 11.5 percent while prime is now 15 percent.

Since the previous meeting of the Monetary Policy Committee, domestic inflation had moderated and was expected to decline further over the coming months, Mboweni said at a media briefing.

"At the same time, the South African economy has been affected by the significant global slowdown that has intensified recently.

"The domestic economy experienced negligible growth in the third quarter, while a number of sectors contracted."

Mboweni said that moreover, while there had been some improvement in the inflation outlook, risks posed by uncertainty with regard to the exchange rate in particular, remained.

Mboweni added that the data releases over the past weeks had shown that the international economy was slowing down faster than previously expected and that global inflation pressures were subsiding.

"This has resulted in the recent global interventions by policy makers," Mboweni said.

Domestic monetary policy remained guided by local conditions.

"Monetary policy always takes into consideration the possible impacts of global developments on the South African economy in general and on inflation in particular."

Mboweni said that CPIX inflation (headline inflation excluding mortgage interest costs) measured 13,6 per cent in August 2008 and subsequently declined to year-on-year increases of 13,0 per cent and 12,4 per cent in September and October, respectively.

"Food, petrol and electricity prices were the main contributors to the inflation outcomes, despite the petrol price reductions in
September and October," he said.

Food prices increased at a year-on-year rate of 17,2 per cent in October, while petrol and electricity prices increased by 31 per cent over the same period.

"If food and petrol were excluded, CPIX inflation would have measured 8,4 per cent in October, compared to 8,5 per cent in
September," he said.

Producer price inflation also showed signs of moderating in the past two months despite significant electricity price increases.

Turning to the outlook for inflation, the governor said that the most recent central forecast of the Bank showed a further improvement in the inflation outlook since the previous MPC meeting.

"With an unchanged stance of monetary policy, inflation is expected to continue its downward trajectory, and to return to within the inflation target range in the third quarter of 2009."

Inflation was expected then marginally to breach the upper end of the target range in the first quarter of 2010 as a result of technical base effects associated with the decline in petrol prices at the end of 2008.

"However, the downward inflation trend is forecast to continue thereafter," Mboweni said.

Inflation was expected to average 6,2 per cent and 5,6 per cent in 2009 and 2010 respectively and to average 5,3 per cent in the final quarter of 2010.

"The forecasts are subject to a greater degree of uncertainty than usual, given the highly volatile global environment, and the uncertainty related to the impact of the rebasing and reweighting of the CPI basket to be introduced by Statistics South Africa in January 2009," Mboweni said.

Mboweni stressed that the exchange rate remained the most significant upside risk to the inflation outlook.

"Since the previous meeting of the MPC, the rand exchange rate has depreciated against the US dollar by about 11 per cent."

The governor pointed out that international crude oil prices had declined further.

The lower international oil price had resulted in a cumulative decline in domestic petrol prices of R3,35 per litre since August, and by R2,06 since the previous MPC meeting.

"If current levels of international oil prices and exchange rates persist, a further sizeable decline in the domestic petrol price can be expected in January," Mboweni said.

He added that the trend in international food prices had also followed that of other commodities, and since June 2008 there has been a 30 per cent decline in the Economist Food Price Index.