Rising South Africa’s inflation rate to a 30-month high is unlikely to cause interest rates to rise, as the central bank had forecasted price hikes in the second quarter.
Consumer prices rose 5.2% in May from a year earlier, down from 4.4% in April, Pretoria-based Statistics South Africa said on Wednesday in a statement on its website.
This matched the median of 15 economists’ estimates and was above the midpoint of 4.5% of the central bank’s target range for the first time in 15 months.
The Reserve Bank’s quarterly projection model in May showed inflation would exceed 4.5% – where the monetary policy committee prefers to anchor price growth – in the second quarter and again in the fourth.
The model also showed a 25 basis point increase in its benchmark rate in each of those two quarters.
“The still benign inflation outlook supports our expectations that the central bank will leave rates unchanged until 2021, although a better-than-expected recovery could lead to increases as early as the fourth quarter,” said Boingotlo Gasealahwe, Africa economist at Bloomberg /
Forward rate deals, used to speculate on borrowing costs, fell on Wednesday, suggesting traders are not adding to bets on rate hikes and seeing the central bank increase borrowing costs as soon as possible. ‘in the fourth quarter. The rand traded 0.7% stronger at R14.17 per dollar at 12:35 p.m. in Johannesburg.
Traders watching South Africa’s inflation figures were also said to have been reassured by comments from Federal Reserve Chairman Jerome Powell on Tuesday that recent price increases in the US economy are larger than expected, but will probably decrease.
As a result, the Fed would be patient while waiting to lift borrowing costs, he said.
South Africa‘s central bank slashed the repurchase rate by 300 basis points from January to July last year to protect the economy from the global fallout from the Covid-19 pandemic and the impact of local restrictions on locking.
Since the start of 2021, none of the five MPC members have voted for further easing and the panel’s message has been that the next move will be in place, although the timing is still uncertain.
Of the 13 economists polled by Bloomberg, only four expect the key rate to rise in the fourth quarter, with the majority predicting increases from the first quarter of 2022.
Rising inflation will likely see the central bank revise its price growth forecast slightly upward at its next meeting in July, but it is still expected to keep interest rates unchanged at current levels over the next few months. Elize Kruger, independent economist, said in an emailed note.
Governor Lesetja Kganyago told an investment conference last week that if the MPC sees a sustained deviation in inflation from the midpoint of the target, it will step in to bring price growth under control.
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