OWN CORRESPONDENT, Pretoria | Tuesday 2.15pm
THE headline inflation rate fell to its lowest level in nearly 30 years in August leaving analysts baying for an interest rate cut to cheer the ailing economy.
According to figures released by Statistics South Africa on Tuesday, the rise in the consumer price index slipped to 3,2% in the year to August from 4,9% in July, the lowest rate since September 1969 when inflation dipped to 2,1%, according to figures released by Statistics South Africa.
”It’s pretty good and the market should take some confidence from the number… It underlines the need to cut interest rates now,” said Colen Garrow, economist at ABN-Amro in Johannesburg.
Yields on the government’s benchmark six-year R150 bond edged down on the news to 14,65% from 14,69%. The rand held firmed at R6,06 to the dollar from R6,09 at the start of the trading day.
Core inflation, excluding food prices and interest rates on mortgages, which is closely watched by the central bank as an interest rate signal, moved down to 7,9% in the year to August, from 8,2% in July.
Economists said that further bolstered expectations for a one percentage point cut in prime interest rates some time this month. Many reckon the cut could come as early as Thursday.
Stats SA said the main cause of the lower-than-expected headline CPI figure was a sharp decline in mortgage rates, which have fallen to an average 16,74% from 21,79% in August last year.
While the numbers are encouraging, analysts said there would likely be only one more interest rate cut this year as millennium bug concerns prompt banks to hold off on loosening credit too much. There are also concerns that core inflation remains too high.– Reuters