Inflation Rate down slightly, Rand braces for SARB decision

Stats SA announced this morning that annual consumer inflation for August was 4.9%, marginally lower than what most analysts had expected, but still 0.2% lower than in July 2018. It seems the current Rand weakness, which leads to price hikes for imported goods has not yet caught up with the consumer price levels, hence a last breather before the inflation rate will shift upwards again, but still a comfortable 1.1% from the target corridor of between 3% and 6%.

But is it is also good news for tomorrow’s meeting of the Monetary Policy Committee of the South African Reserve Bank (SARB) as it takes some pressure off any motivation to hike rates? Not really! The MPC needs to decide proactively rather than reactively and the Rand Exchange rate WILL influence consumer prices and hence inflation WILL go up.

Fortunately enough, the inflation rate is not the only factor swinging SARB either way. We are still in a – technical – recession, which needs to be answered by stimuli. Now one stimulus would be the cost of finance, meaning lower interest rates are always more suitable to stimulate local investment and hence growth, but same stimulus would also deter commercial investors from parking FOREX as with every point interest lost, massive liquid investments leave the country off to greener pastures and by selling Rand putting the currency under further pressure …… leading to higher imported inflation …. the Devil’s circle!!

Let’s see and wait what Mr. Kanyago can report tomorrow afternoon.

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