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Less pressure for rates rise as CPI slows
Less pressure for rates rise as CPI slows

Less pressure for rates rise as CPI slows

ECONOMIC NEWS

Fin24 - Mar 23rd 2012, 07:33

Johannesburg - South Africa’s targeted consumer inflation slowed unexpectedly in February, data showed on Thursday, suggesting price pressures that have pushed it above the Reserve Bank’s target are ebbing and giving the bank leeway to keep interest rates on hold. 

Inflation breached the central bank’s 3-6% target in November and has been above the band since then.

But the consumer price index (CPI) braked to 6.1% year-on-year (y/y) in February from 6.3% in January, Statistics South Africa said. On a month-on-month (m/m) basis, inflation was at 0.6%, unchanged from January.

Economist surveyed by Reuters had expected CPI to edge up to 6.4% y/y and to 0.8% on a m/m basis.

“Markets will be encouraged by the drift closer towards the upper end of the 3-6% inflation target,” said Razia Khan, head of Africa research at Standard Chartered.

“The immediate market reaction is likely to be that this allows the Sarb (SA Reserve Bank) to keep interest rates on hold a while longer, despite the more hawkish comments we’ve had from governor Marcus recently.”

Inflation pressures are now likely becoming more generalised, reflecting demand-side pressure rather than only external factors, Marcus warned earlier this month, in what the market took as a signal of eventual monetary tightening.

The bank has said inflationary pressures were of a cost-push nature and it would not be appropriate to raise interest rates given the lack of demand-side pressures. The bank has kept rates on hold at 5.5% since November 2010.

Government bonds, which have been selling off in recent days as the market increasingly prices in higher rates by year-end, edged higher after the release of the CPI data.  

Read more about: interest rates | sarb | cpi | consumer inflation

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