The rate trim may stop a two year rally in the domestic currency

Some analysts see the SA central bank's cut in the key repo interest rate, by half a percentage point to 7.50%, as being forced by political pressure.

The rand touched 6.55 against the dollar, 13 cents weaker than Thursday's close, and its lowest since 10 June.

Its depreciation against the US dollar was 5.4% in less than 24 hours.

Labour march

Markets were caught on the hop by the announcement, which came without warning.

At the South African Reserve Bank's last policy meeting in June, governor Tito Mboweni had said no-one should expect any more interest rate cuts.

"It would appear that the pressure that was brought to bear on the MPC (monetary policy committee) following the march of labour union members on Wednesday, played a significant role in the decision," said Absa chief economist Christo Luus in a research note.

"The rand did lose more than 20 cents against the dollar on the news, but it remains to be seen whether this decline will be sustained. "

He said the weaker dollar and high international commodity prices may prove to be more important factors than the rate cut.

Commercial banks

Mr Mboweni said the move was justified by a "moderate improvement" in the inflation outlook.

He did not address the issues of strong domestic demand, and uncertainty over the impact on prices of global oil prices, which have reached 21-year highs this week.

The rand strengthened by more than 30% against the dollar last year, and rates were last cut in December, by half a percentage point, to 8%,

South Africa's financial markets had priced in an interest rate increase towards the end of 2004, and the rate trim is seen as a bid to halt a 2.5 year rally in the domestic currency.

The country's big four commercial banks lowered their prime lending rates by 50 basis points to 11% - the lowest level since 1980.