South Africa's Reserve Bank has cut interest rates further than expected as it tries to stimulate growth in the economy.

The bank cut interest rates from 13.5% to 12% - the first rate reduction in 21 months.

Reserve Bank governor Tito Mboweni said the bank would remain 'vigilant' on inflation risks and increase the frequency of monetary policy meetings.

"In taking this decision, the (monetary policy) committee recognises the progress achieved so far in reducing inflation," said Mr Mboweni.

"But the committee will remain vigilant to the risks, particularly those relating to wage settlements, administered prices and the uncertain outlook for the global economy."

More cuts ahead?

Economists welcomed the rate cut, which they said would help boost the flagging economy.

"I think it was quite a gutsy move," said Colen Garrow, an economist at Brait Merchant Bank.

Mr Garrow also predicted further cuts ahead.

"All in all I think we will see (a cut of) four and a half percentage points this year."

Meeting targets

South Africa's key retail inflation figure, the CPIX, rose 8.3% on an annual basis in April from 9.3% in March.

But it is still well outside the target range of between 3% and 6%.

Mr Mboweni listed a number of reasons why inflation would continue to subside in coming months - including low global inflation, the rand's recovery and a surplus manufacturing capacity.

He added that the bank would now meet every two months instead of the previous three monthly meetings.

Economists praised the decision.

"The increase in the frequency of the MPC meetings...will undoubtedly add to the flexibility of monetary policy," said Matthys Strauss, chief strategist at ABSA.