South Africa Rate Bets Pared as CPI Gains Less Than Forecast

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South Africa’s inflation rate rose less than economists forecast to 4.7 percent in June, prompting investors to pare bets of an interest rate increase tomorrow.

Inflation accelerated from 4.6 percent in May, the Pretoria-based statistics office said on its website on Wednesday. The median estimate of 24 economists surveyed by Bloomberg was 5 percent. Prices rose 0.4 percent in the month.

Analysts are divided on whether the Reserve Bank will increase its benchmark rate for the first time in a year from 5.75 percent on Thursday. While a weaker rand and rising electricity costs are putting pressure on inflation, the economy is struggling to recover from the slowest expansion since the 2009 recession.

“The data makes the market a bit more uncertain about the expectations for a rate hike tomorrow and I think it’s a justified analysis,” Jana van Deventer, an economist at ETM Analytics, said by phone from Johannesburg. “We think the Reserve Bank will keep rates unchanged tomorrow.”

Forward rate agreements starting in one month, used to speculate on rates, fell 5 basis points to a four-week low of 6.25 percent as of 10:54 a.m. in Johannesburg. That shows traders are pricing in a 36 percent probability of a 25 basis-point increase tomorrow.

The rand fell 0.4 percent to 12.3776 against the dollar, taking its decline this year to 6.5 percent.

Seventeen of the 31 economists surveyed by Bloomberg predict an increase in the benchmark rate of 25 basis points, while the rest say it will stay unchanged.

Oil Drop

The inflation data was better than expected after food prices rose at a slower pace of 4.3 percent in June from a year ago and gasoline costs fell 5 percent. Brent crude oil has plunged 47 percent in the past year.

The central bank’s projection is for inflation to breach the 3 percent to 6 percent target in the first quarter, giving policy makers room to raise interest rates. Deputy Governor Daniel Mminele said in an interview on July 7 that the MPC has little flexibility to continue keeping the key rate on hold.

Core inflation, which excludes food, non-alcoholic beverages, gasoline and electricity costs, slowed to 5.5 percent in June, the lowest since May 2014, from 5.7 percent in the previous month.

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