Will the central bank, with the strength of the rand, be tempted to cut rates despite the inflation data, asks Jabu.
Maya replies: Well, this question came in about one hour before Reserve Bank Governor Marcus announced the 50 bps cut, so it is already answered.
The decision was probably driven by inflation coming in below 6% which is the top end of our inflation range target as well as better than expected producer price inflation (PPI). There is always talk about interest rates and the strength of our currency, however I am yet to see a correlation between our interest rates and our currency!
It is the US interest rates that have a far greater impact because the lower the interest rates in the US, the more inclined investors are to search for better returns outside of the US. What drives the strength of our currency is investors looking to invest for economic growth and the lower our interest rates, the more likely we are to see higher growth. One could possibly argue that cutting rates could actually strengthen the rand!