FURTHER interest rate cuts cannot be taken for granted and will depend on changing global conditions, along with inflation and growth developments, says Reserve Bank governor Gill Marcus.

There is speculation that the Bank will ease monetary policy again this year after its decision on July 19 to trim its repo rate by half a percentage point to 5%.

That took local markets by surprise, as the timing was unexpected - even though they had priced in a reduction before the end of this year.

Most analysts had believed rates would be kept steady until the end of next year.

The Bank's monetary policy committee said at the time its aim was to shield South Africa's fragile economy from the negative effects of a global slowdown and recession in Europe, one of its main trade partners. Lower inflation gave the committee scope for the step.

"We view the recent move as part of the easing cycle that began in the wake of the crisis," Ms Marcus explained on Saturday night in a speech to the South African National Editors Forum in Durban, titled, Transparency, Communication and Democracy.

"We had previously thought we were at the bottom of the interest rate cycle, but events unfolded in an unexpected way.

"Further easing, however, cannot be taken for granted and will depend on changing global conditions, further inflation and growth developments."

The Bank began to cut interest rates late in 2008 after the global financial crisis had taken hold, sparking some criticism that it acted too late.

Until the latest cut, it had kept its key repo rate steady at 5,5% since November 2010, and earlier this year local markets had expected interest rates to rise before the end of the year.

"What she's saying is we are not in for a series of cuts, although one more cannot be ruled out - there may be another 50 basis points in it if things take a turn for the worse," Nicky Weimar, Nedbank economist, said yesterday.

Ms Marcus said forward rate agreements on local money markets had correctly foreseen the committee's decisions, which showed the Bank was communicating its thinking effectively.

She quoted research asserting that large global financial institutions, through their research supplied to clients and the media, also influenced public and market expectations of monetary policy, to the extent that they could be trying to lead or influence central bank thinking.

"We must hear what the markets are saying, and communicate with the markets, but in the end we need to do what we think is right, irrespective of what the market thinks, and not slavishly follow the market. Central banks are institutions that must act in the interests of the country as a whole and they are able to do so precisely because they do not have a profit motive."

Ms Marcus said the Bank had become more predictable and transparent in terms of the guidance it gave to local markets, but would not go so far as to predict the future path of interest rates - which was an issue of heated debate among central banks.

"The reality is that the further we go into the future, the less confident we can be about our future actions," she said. "I could give you my best guess, or a forecast based on all available information and reasonable assumptions, but this is likely to be wrong. Monetary policy operates in an uncertain environment all the time."

Analysts have urged the Bank to give its view on the likely future course of interest rates, as do central banks in several other countries. Instead, the Bank publishes its assessment of "risks" to its growth and inflation forecasts.

isam@bdfm.co.za