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South African inflation stable but still above central bank objective

Rand currency

Photo by Reuters

19th June 2024

By: Reuters

  

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South African inflation was stable in May, data showed on Wednesday, but analysts do not expect interest rate cuts any time soon as it remains above the central bank's desired level.

Headline consumer inflation came in at 5.2% year on year in May, the same as in April, in line with the forecast of economists polled by Reuters.

The South African Reserve Bank (SARB) wants to see inflation fall to 4.5%, the midpoint of its target band, and has kept its main interest rate at its highest level since 2009 for more than a year to try to achieve that objective.

Inflation has been above 5% for months, and the central bank estimated last month that inflation would only stabilise at 4.5% in the second quarter of 2025.

According to a Reuters poll released on Tuesday, the SARB could wait until November before cutting its repo rate.

Capital Economics analyst David Omojomolo said the formation of a government of national unity following last month's election could ease the central bank's fiscal concerns, meaning a higher chance of a rate cut before the end of this year.

Annabel Bishop at Investec bank said after Wednesday's data that the central bank's tone would probably remain hawkish for now.

Five political parties have joined the African National Congress (ANC) in a unity government after the ANC lost its majority in the May 29 vote for the first time since the end of apartheid 30 years ago.

Markets have been reassured because the unity government includes the pro-business Democratic Alliance and excludes parties viewed as more radical, the hard-left Economic Freedom Fighters and uMkhonto we Sizwe led by former president Jacob Zuma.

Inflation was at 0.2% in May on a month-on-month basis, compared to 0.3% in April.

Edited by Reuters

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