South Africa's repo rate has been cut by 100 basis points - or one percentage point -- following the meeting of the Monetary Policy Committee (MPC) of the SA Reserve Bank, Governor Tito Mboweni said on Thursday.

The repo rate is now 10.5 percent while prime is now 14 percent.

Mboweni said that since the previous meeting of the MPC, domestic inflation had continued on its downward trend.

"A further decline is expected in the January data when the
reweighting and rebasing of the CPI index implemented by Statistics South Africa comes into effect," Mboweni said.

With respect to economic growth, the domestic economy was being adversely affected by the continuing turbulence in the global economy.

The widening domestic output gap and declining international commodity prices were expected to exert further downward pressure on inflation going forward.

"Nevertheless some risks to the inflation outlook remain and the MPC had to assess these conflicting risks against the backdrop of a highly uncertain and volatile international environment," Mboweni said.

The volatile exchange rate of the rand continued to pose the main upside risk to the inflation outlook.

"The rand is currently trading against the US dollar at levels similar to those prevailing at the time of the previous MPC meeting," Mboweni said.

During December 2008 the rand appreciated against the US dollar and reached a level of R9,30 in the first week of January.

This move was mainly a result of a weaker US dollar which depreciated to US1,47 against the euro, Mboweni said.

Renewed risk aversion in international markets and a stronger US dollar in January resulted in the rand returning to current levels of around R10,00.

The rand has appreciated only marginally on a trade-weighted basis since the previous meeting, Mboweni added.

The risks to the inflation outlook posed by oil and food prices appeared to have subsided somewhat.

According to the governor, food prices continued to moderate at the production price level but these favourable developments had not yet been seen at the consumer price level.

"I agree with Nick Badminton of Pick n Pay that something is happening on the supplier side," Mboweni said.

Spot and futures prices of maize and wheat remained well below the average price level in 2008 and some relief at the consumer price level was expected in the coming months.

The price of Brent crude oil, which reached a low of US34 per barrel during December 2008, averaged around US41 for the month.

This, along with the termination of the slate levy, allowed for a further reduction in domestic petrol prices of R1,34 per litre in January.

However, international oil prices recovered somewhat in January and averaged almost US45 per barrel during that month.

As a consequence, Mboweni said, the domestic price of petrol was increased by 61 cents per litre in February.

"The outlook for oil prices remains uncertain, but prices are expected to remain relatively subdued as a result of weakening global growth," he said.