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ZAR Weaker On Lower Inflation Data

James Boston
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ZAR Weaker On Lower Inflation Data

The South African Reserve Bank (SARB) will no doubt feel some easing of pressure following the publication this morning of the September inflation figures for the economy. The year on year Consumer Price Index (CPI) has undergone a welcome half point fall from 6.40% in August to 5.90% in September, this exceeded the expectation for a drop to 6.10%. Month on month the figure came in at 0.00%, below the previous month’s 0.40% and also lower than the anticipated 0.20%. The Core CPI figure is has registered at 5.60% year on year compared with 5.80% in August and an expected reading of 5.70%. The month on month change to the Core number showed prices increasing by 0.40%, this was slightly higher than the previous month’s 0.30% gain but below the anticipated increase of 0.50%.

Today’s move lower brings the inflation rate back within the SARB’s target range of 3% to 6%. The Bank has been under pressure to further increase the base interest rate in order to cool the acceleration in price growth which has been above the target band for the last six months having peaked at 6.60% during the summer. Despite some general cooling in the South African economy it is falling oil prices that are being cited as the reason for price growth slowing as it has. It is however difficult to see how much lower oil could go and therefore how much more of an impact it could have on South African prices. Commentators are suggesting that as long as inflation remains below the 6% level, even marginally, then the SARB will hold off on further monetary tightening, should it rise again then there is the potential for an additional 0.25% hike in the near future. The next meeting is November 20th by which time solid indications of the October inflation data will likely be available to the policy makers.

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