The Reserve Bank Defies Market Expectations - No Interest Rate Cut

SOUTH AFRICA - Report 21 Sep 2017 by Iraj Abedian

At its previous meeting in July 2017, the SA Reserve Bank’s Monetary Policy Committee cut the benchmark interest rate for the first time in five years. Today the MPC decided not to change the repo rate and kept it at 6.75%.

South Africa’s inflation has been moderating since the beginning of the year, with headline CPI having started the year at 6.6% and reaching a minimum (so far) of 4.6% y/y in July, before slightly accelerating to 4.8% y/y in August 2017. Food price inflation, which had been the main contributor to the falling overall inflation rate, fell from 6.8% y/y in July 2017 to 5.7% y/y in August, thus continuing its deceleration trend. See Graph 1. Meat prices continued to rise though (Aug: 15.0% from Jul: 14.4%), but the majority of the food category’s prices continued to moderate, e.g. bread and cereals (Aug: -1.2% from Jul: 2%) and vegetables (Aug: -1.5% from Jul: -1.4%). Furthermore, food producer price inflation also declined in July, to 3.3% y/y, suggesting a continuation in the lowering of overall food prices.

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