Johannesburg — INTEREST rates are set to fall further this year, although Reserve Bank governor Tito Mboweni has made it clear that markets should not expect a cut at each of its scheduled monthly policy meetings.

The Bank's monetary policy committee (MPC) lowered its key repurchase rate by one percentage point to 9,5% yesterday, in line with analyst forecasts but short of market expectations for an even bigger reduction.

MPC member Brian Kahn told SABC television after the announcement that the Bank did not think a bigger adjustment was needed at this point , despite the grim global economic outlook.

Since it began to cut interest rates in December, the Bank has lowered its key repo rate by 2,5 percentage points, speeding up the pace with two percentage-point cuts at its past two policy meetings.

"It's not necessarily the end of the cycle," Kahn said. "But at this point we think we are on an appropriate path.

"If we thought it was too little, we would have done more this time," he said.

Mboweni told journalists that the seven-member MPC had discussed "a spread" of views on its decision, ranging between a rate cut of half a percentage point to 1,5 percentage points.

But he took markets to task for speculating there would be a cut at each of its more frequently scheduled monthly meetings this year.

"If anyone takes that position they would be a fool," he said.

Nevertheless, analysts and markets are betting that the Bank will cut rates by another two to four percentage points by August this year, to keep the economy out of the global recession.

"Chances are better than good that there could be another 100- basis-point cut when the MPC meet again, on 29-30 April," said Brait economist Colen Garrow.

He is betting that the repo rate will end the year at 6%, which would take prime lending rates set by commercial banks down to 9,5% from 13%.

"With banks remaining risk-averse, and not providing the generous liquidity they have in the past, the repo rate can be cut more aggressively, without stimulating demand unnecessarily," he said.

Mboweni acknowledged to reporters that the country's economy may contract again after shrinking 1,8% in the fourth quarter of last year -- which would put it into a technical recession.

But he declined to say whether the Bank expected the economy to contract over the whole year, tracking the severe downturn in several of its main trade partners -- the US, Europe and the UK.

The MPC statement revealed that consumer spending, the economy's main growth engine, shrank 2,7% in the final quarter of last year, after declining for the first time in a decade during the previous quarter.

It also said that the deficit on the current account, a country's broadest measure of trade in goods and services, shrank to 5,8% in the fourth quarter of last year from 7,8% in the third quarter.

That is its lowest in two years, and bodes well for the volatile rand, which briefly firmed to a three-and-a-half month peak at R9,38 to the dollar yesterday.

A stronger exchange rate helps to keep inflation pressures at bay, which in turn helps provides scope for lower interest rates.

"With little sign of the South African economy bottoming, we expect that today's cut will be followed by similar-sized cuts to the repo rate at both the April and May meetings," Absa Capital said in a research note. "We have also pencilled in a 50-basis-point (half a percentage point) cut in June, taking the terminal rate to 7%," it said.

That would mean that the Bank would have reversed all of its cumulative five-percentage-point hike in lending rates between the middle of 2006 and the middle of last year.

Business leaders welcomed yesterday's rate cut, but said that more reductions were needed to support local companies in the months ahead.

"Business Unity SA believes that the real economic indicators in SA remain overwhelmingly negative and a further cut in interest rates will help strengthen business and consumer confidence," the country's biggest business group said.

The South African Chamber of Commerce and Industry said the reduction would help ease the plight of small and medium-sized enterprises, which were taking on more debt to sustain their business.