Lower inflation promises static lending rates

New South African bank notes featuring an image of former South African President Nelson Mandela are displayed at an office in Johannesburg(Reuters) – SA’s rand firmed against the dollar on Wednesday after softer-than-expected inflation bolstered the case for local lending rates to remain on hold. By mid-afternoon the currency gained 0.37 percent to R11.864 per dollar, pulling away from the crucial 12.00 mark after April headline inflation quickened to 4.5 percent year-on- year, slightly below expectations.

“Fixed rates are printing lower and the currency was also impacted positively,” said Marten Banninga of World Wide Capital Securities.

Yields on governments bonds fell on the soft inflation data, with the benchmark paper due in 2026 shedding 7 basis points to 7.975 percent.

“It’s a wait-and-see approach to see what comes out of the Monetary Policy Committee (MPC) tomorrow, but inflation is still well within the central bank’s target band,” Banninga added.

All but one of the 33 economists polled by Reuters said the repo rate would be left unchanged Thursday at 5.75 percent, where it has been since July. “The SARB (South African Reserve Bank) has said if a breach of the 6 percent limit is temporary they won’t move, but I think they will be forced to. It will be more than a temporary move come the end of the year,” said analyst Bart Stemmet of NKC Independent Economists.

Sentiment toward the local assets was also soothed by government and public sector unions agreeing a wage deal late on Tuesday, averting a potentially crippling strike by 1.3 million workers.

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