Rate hike unlikely after consumer inflation slows

(iStock)
(iStock)

Pretoria - South Africa's headline consumer inflation dipped below the top end of the South African Reserve Bank's (Sarb) target in August to its lowest in nine months, data showed on Wednesday, suggesting interest rates would remain unchanged at this week's monetary policy meeting.

READ: August inflation drops below 6%

Inflation has been trending lower since peaking at 7% in February, partly helped by a stronger rand which is up about 12% against the dollar so far this year after losing a quarter of its value in 2015.

Consumer inflation slowed to 5.9% year-on-year in August from 6% in July, data from Statistics South Africa showed.

Economists polled by Reuters correctly predicted CPI would come in 5.9%, within Sarb's 3% to 6% target band.

"This is good news from an interest rate perspective," KPMG senior economist Christie Viljoen said.

"While the Sarb will certainly not lower interest rates this year, a moderation in inflation forecasts could result in a longer pause in its monetary policy tightening cycle.

The rand held firm against the dollar after the CPI data, helped by strong appetite for high yielding emerging market assets as investors expect the Federal Reserve to keep US interest rates low for longer this year.

Sarb has hiked the benchmark repo rate by a cumulative 200 basis points since the start of 2014, but left it unchanged at 7% at its May and July policy meetings.

Economists polled by Reuters expect another hold when the bank concludes its latest meeting on Thursday.

Stats SA data on Wednesday also showed consumer prices were down 0.1% on a month-on-month basis in August, after a 0.8% increase previously.

Core inflation, which excludes the prices of food, non-alcoholic beverages, petrol and energy, was unchanged at 5.7% year-on-year, but slowed to 0.2% month-on-month from 0.6%.

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