The Reserve Bank's monetary policy committee has voted to reduce the repo rate for the fourth time this year, from 4.25% to 3.75%.
As a result of the cut, the prime lending rate will fall to from 7.75% to 7.25%.
The repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks.
Reserve Bank governor Lesetja Kganyago said at a briefing on Thursday afternoon that the central bank now expects SA's GDP to shrink by 7% this year. In April, the bank had predicted a 6.1% fall in GDP.
The decrease in the repo rate was widely predicted by analysts as the Reserve Bank seeks to bolster SA's fragile economy by lowering interest rates and upping its bond purchases.