South Africa Expected To Maintain Interest Rate As Inflation Holds Steady In May

South Africa’s inflation rate remained steady in May, increasing the likelihood that the central bank will maintain its current interest rate. According to Statistics South Africa, consumer prices rose by 5.2% annually, matching the rate seen in April.

During its July meeting, the country’s consistent inflation rate is expected to influence the South African Reserve Bank’s (SARB) decision to keep the benchmark interest rate at 8.25%, a 15-year high.

Governor Lesetja Kganyago has stressed the importance of achieving a stable inflation rate within the target range of 3% to 6% before considering lowering borrowing costs.

Despite political changes following the May 29 elections, in which the African National Congress (ANC) lost its parliamentary majority for the first time since 1994, Kganyago reaffirmed the bank’s commitment to controlling inflation.

“We will continue to deliver on that mandate, irrespective of how our post-election politics plays out,” he stated.

While some market participants foresee a possible 25-basis point rate cut in July, most expect significant rate reductions to begin in November. Bloomberg Africa economist Yvonne Mhango predicts the rate-cutting cycle will commence in the fourth quarter.

Factors likely contributing to easing inflation include a significant drop in gasoline prices in June and a rally in the rand, which has gained over 3% since Friday.

The South African rand strengthened to nearly an 11-month high, trading at 17.9575 against the dollar on Wednesday. On the stock market, the Top-40 index and the broader all-share index saw increases of 1.3% and 1.2%, respectively. Additionally, South Africa’s benchmark 2030 government bond strengthened, with the yield decreasing by 15 basis points to 9.705%.

Statistics South Africa noted that while inflation rates for food and non-alcoholic beverages remained stable from April to May, higher rates were recorded for transport, alcoholic beverages and tobacco, and recreation and culture.

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