South Africa’s inflation falls in July, SARB likely to keep rates stable for now

South Africa’s inflation dropped more markedly than anticipated in July. On a year-on-year basis, consumer price inflation dropped to 4.6 percent, as compared with consensus expectations of 4.7 percent. The data has boosted expectations that the central bank, South Africa Reserve Bank might lower its key rate once again at the remaining two meetings in September and November so as to take the pressure off the ailing economy, noted Commerzbank in a research report.

In July, the SARB had surprisingly lowered they policy rate by 25 basis points to then 6.75 percent. Additional rate cut as early as September cannot be excluded in view of the recently rather dovish Fed and the continued positive sentiment towards the emerging market currencies.

But, the SARB has cut its inflation outlook in July and the development of the core rate corresponds with its expectations. Against the background of political risks, a stable key rate is expected for now, added Commerzbank.

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