The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) has cut the repo rate by 100 basis points, Governor Tito Mboweni said on Thursday.
The repo rate now stands at 7,5% while prime has been reduced to 11%.
This is the SARB's fourth rate cut this year.
Mboweni said the SARB's most recent consumer price inflation forecast showed a relatively unchanged outcome for the near-term as compared to that presented to the previous meeting of the MPC.
"Over the longer term, there appears to be a moderate improvement," he added.
This forecast, Mboweni noted, was similar to the Reuters consensus forecast of private analysts who expected inflation to average 6,9% and 5,7% in 2009 and 2010 respectively.
Mboweni said the main upside risk to the inflation outlook came from cost-push pressures, in particular from electricity price increases.
"Eskom has applied to the National Energy Regulator of South Africa for a 34% interim increase in electricity tariffs, but there is still uncertainty about the final adjustment," he said.
A number of municipalities had already budgeted for significant electricity price increases in anticipation of higher Eskom tariffs, Mboweni noted.
According to the governor, in line with the less negative global outlook, there had been a moderate recovery in international oil prices.
"North Sea Brent crude oil has been trading at prices of around
$60 per barrel during the past days, compared with an average of around $50 per barrel during April.
"These developments may result in a moderate increase in the domestic petrol price in June," he said.
The impact of the higher international prices on domestic petrol prices had been partly offset by exchange rate movements during the month, Mboweni said.
He added that food price inflation remained well above average inflation, and had been lagging the favourable developments at the producer price level and in the spot prices of agricultural commodities.
"Food price inflation measured 17,9% in August 2008 and has been moderating persistently, but slowly, since then," the governor said.
Download the full MPC statement above.