Neutralising SARB’s hawkish tones: Lower inflation to keep rate hikes away

JOHANNESBURG — Those who have a bond or debt may have some small victories to celebrate in the upcoming SARB rates decision as inflation has not risen as quickly as analysts expected. At 4.4%, South Africa’s inflation rate is still high compared to developed markets, but well within the Reserve Bank’s 3-6% target range. Hopefully, this will provide some breathing room for already stretched South African consumers – now we just need to hope that oil prices stay in check and don’t rise any further… – Gareth van Zyl

By Ana Monteiro

(Bloomberg) – South African consumer prices accelerated at a slower pace than economists’ expectations in June, cementing the case for the central bank to hold its benchmark rate Thursday.

The annual inflation rate was 4.6 percent compared with 4.4 percent in May, Pretoria-based Statistics South Africa said in a statement Wednesday. The median estimate in a Bloomberg survey was 4.8 percent.

The rand had its worst month in more than two years in June as the US and China exchanged tariff blows at a time when the prospect of rising American rates also weighed on emerging-market assets. The weaker currency and higher oil prices added upside risks to inflation in Africa’s most-industrialised economy.

The logo of the South African Reserve Bank sits on a lecturn during a news conference. Photographer: Waldo Swiegers/Bloomberg

“The SARB isn’t going to be in a rush to raise rates,” Jeffrey Schultz, an economist at BNP Paribas South Africa in Johannesburg, said by phone. “We’ve had five months where headline inflation has undershot expectations, and this is likely to neutralise some of the hawkish tones from the central bank.”

The rate has exceeded the midpoint of the central bank’s target range of 3 percent to 6 percent for the first time since December. The Monetary Policy Committee has made it clear that it also prefers to see expectations for future inflation close to 4.5 percent.

Rate bets

The bank is likely to hold the benchmark rate at 6.5 percent on Thursday, according to all 15 economists in a Bloomberg survey. Forward-rate agreements starting in December, after the last MPC meeting of the year, dropped two basis points to 7.09 percent at 10:42 a.m. in Johannesburg as traders cut bets on a rate increase.

Core inflation, which excludes the price of food, non-alcoholic beverages, energy and gasoline, was 4.2 percent in June, the statistics agency said. Transport costs climbed 7.3 percent in June from a year earlier, the biggest increase since March 2017.