MegaBanner-Right

MegaBanner-Left

LeaderBoad-Right

LeaderBoard-Left

Home » Industry News » Business Advisory & Financial Services » Reserve bank likely to maintain interest rates amid inflation concerns

Reserve bank likely to maintain interest rates amid inflation concerns

As South Africa deals with persistent inflationary pressures, the South African Reserve Bank (SARB) is anticipated to keep interest rates unchanged at their upcoming May 30th Monetary Policy Committee (MPC) meeting. Despite sharp easing in consumer goods inflation, the Reserve Bank is still very concerned about inflation expectations which precludes any immediate rate cuts this week.

According to Old Mutual Group Chief Economist, Johann Els, “Even if the SARB had considered a rate cut, the timing would probably not have been appropriate given the proximity to the national elections and the potential volatility in the currency markets that might arise from the election results.” He points out that recent weeks have seen significant strength in the Rand, which further complicates the decision-making process for the SARB.

Despite not expecting a rate cut this week, Els asserts that South Africa is already in rate-cutting territory. He explains that while petrol price increases have kept overall inflation high, inflation in other consumer goods has eased substantially. Between March and April, the weighted average inflation for consumer goods such as clothing, footwear, furniture, appliances, and vehicles declined from 4.2% to 3.5%.

He adds, “The recent petrol price increases have had a deflationary effect by limiting consumers’ disposable income, which in turn reduces spending on other goods and services, limiting their price increases.” He references historical data, noting that consumer goods inflation was in negative territory back in 2010-2011 and during 2017-2019, it was below the lower end of the target range.

Els expects that while it is important to address inflation expectations, a delayed rate cut could risk pushing certain sectors of the economy into recessionary territory. He advocates for a rate cut at the next MPC meeting in July, warning that waiting until September could be a policy error.

According to Els, the April inflation report indicates that most inflation rates were unchanged or lower compared to March, with most food components and other categories showing diminished inflation. He concludes that with no significant demand-driven price increases, the SARB should consider rate cuts to support the economy.

To enquire about Cape Business News' digital marketing options please contact sales@cbn.co.za

Related articles

A view on the latest inflation release and the impact on the next interest rate decision

A minor 0.1% miss on expected inflation figures resulted in a relatively subdued response from financial markets to Statistics South Africa’s (SA) latest consumer...

SARB unchanged rates decision likely means property market activity remaining mediocre

Commentary by John Loss, , Property Sector Strategist at FNB Commercial Property Finance. The unchanged repo rate decision was as expected by FNB. This means that the SARB...

MUST READ

We must protect SA’s groundwater

By Chetan Mistry, Strategy and Marketing Manager at Xylem Africa. THE borehole is a South African staple, accessing water from underground aquifers.  This is called groundwater,...

RECOMMENDED

Cape Business News
Follow us on Social Media