WHICH was the greater surprise - that the monetary policy committee (MPC) cut interest rates by 50 basis points or that 23 out of 26 economists hadn't expected it?

Over the years that inflation targeting has been in place, the market has generally got it right. And on the relatively rare occasions when analysts have been headed in the wrong direction, Reserve Bank governor Tito Mboweni has often given a little nudge to expectations. This time, there were no signals. And almost everyone in the market continued to make the wrong call on the committee's decision.

It is possible that private sector economists have now become so accustomed to what they think Mboweni and the MPC's concerns are, and what the decision will be, that they no longer dwell on what it should be. A few economists might have thought the economy was weak enough to justify another rate cut -- but didn't expect the committee to think the same. And who could blame them?

It was reasonable enough to expect that the committee might want to send a clear signal to those demanding steep wage hikes that inflation would not be tolerated. It was reasonable, too, to expect that, with administered prices such as electricity rising fast, the outlook for inflation would still be a concern.

As it turned out, the committee proved to be less worried about the state of inflation than it was about the state of SA's economy. And one big question is what figures did the committee see that tipped its decision? For it is at least possible that the market wasn't wrong so much as that the committee saw fresh data that made the difference to its decision.

One crucial data set that the Bank would have seen, but the market hasn't yet, are the gross domestic product figures for the second quarter, due to be released by Statistics SA next week.

The economy contracted by 6,4% in the first quarter: it was widely expected to contract again in the second quarter, and Mboweni confirmed yesterday that the recession indeed continued in the second quarter. And though he said the economy contracted at a slower rate than in the first quarter, one had the impression that it wasn't necessarily all that much slower.

SA's economy, in other words, is in bad shape. Weak credit, manufacturing and retail figures already indicated that. But yesterday's rate decision suggests the economy may be weaker than many imagine. And it's not just a case of the governor worrying about growth, not inflation. Demand may now be so weak that it will exert downward pressure on inflation, countering some of the "cost-push" upward pressures from items such as fuel and power. Or, in MPC language, "notwithstanding upside cost pressures, the adverse economic conditions appear to tilt the balance of risks to the inflation outlook towards the downside".

How much a further interest rate cut can do at this late stage to arrest the economy's decline is not clear. And the sad thing is that though the extra 50 basis points is welcome, the bad news on the economy is not.