/ 29 September 2010

CPI slows further, room for rate cut

South Africa’s consumer inflation slowed a little more than expected to a fresh four-year low in August, official data showed on Wednesday, leaving the door open for another interest rate cut.

Statistics South Africa said consumer inflation slowed to 3,5% year-on-year in August from 3,7% in July, a touch lower than forecasts of 3,6%. The reading was the lowest since April 2006.

On a month-on-month basis, CPI braked to 0,1% from 0,6% in July, also lower than the 0,2% expectation in a Reuters poll last week.

The South African Reserve Bank expects inflation to remain within its 3 to 6% target range until the end of 2012.

Partly on that benign inflation outlook and to boost a sluggish recovery, the SARB cut the repo rate by 50 basis points to 6% early in September, bringing rate reductions since December 2008 to 600 basis points.

“I’d say we shouldn’t be dismissive of another rate cut. The question is that of timing, whether it will be in November or next year. Certainly the economy is sluggish and prices are subdued,” said Colen Garrow, economist at Brait.

In its September statement, the Monetary Policy Committee said there was limited room for further easing, though it would assess developments on an ongoing basis.

The bond market firmed slightly after the data and the yield on the 2015 bond fell to 7,175% from 7,2% beforehand.

The rand was at 6,9685 to the dollar at 10am GMT GMT from 6,9700 before the data was released at 9.30am GMT. – Reuters