Against all expectations, the Reserve Bank today voted to keep the repo interest rate unchanged at 7.50%, as economists predicted a cut of 50 basis points and in spite of calls from trade unions to reduce rates further.

Economists had previously suggested that interest rates would likely be reduced by 50 basis points this month, though they had remained split on whether that would be the last rate cut.

In a statement explaining its decision, the central bank’s monetary policy committee said it was “fully cognisant of the fact that there has been significant monetary accommodation since December 2008.”

It added that while output growth remains negative and household consumption expenditure has continued to deteriorate, there are signs that the downturn, both globally and domestically, may be nearing the lower turning point.

However, the Reserve Bank noted that any recovery is still expected to be “slow and protracted” adding that indicators suggest the negative trend in GDP growth is likely to have continued during the second quarter of 2009.

The central bank also gave a warning on fuel prices, saying the international oil price has re-emerged as a potential upside risk to the inflation outlook.

“The price of North Sea Brent crude oil reached levels in excess of US$70 per barrel in the past week, before declining to current levels of around US$67 per barrel. As a result of the higher international product prices, a further petrol price increase is likely in July,” it said.

The decision to halt the downward cycle in interest rates marks the first pause since the Reserve Bank began slashing rates in December 2008. Since then, the repo rate has been reduced by 450 basis points from 12.00% to the current 7.50%.

To read the Reserve Bank’s full monetary policy statement click here.