South Africa Inflation Dips Deeper Below Midpoint of Target Band

JOHANNESBURG (Capital Markets in Africa) – South Africa’s inflation rate fell further below the midpoint of the target range in February, giving the central bank another reason to consider easing monetary policy next week.

Inflation slowed to 4 percent, the lowest level in almost three years, from 4.4 percent in January, Pretoria-based Statistics South Africa said Tuesday in a report on its website. The median estimate of 21 economists in a Bloomberg survey was 4.1 percent. Prices rose 0.8 percent in the month.

February’s data marks the eleventh consecutive month of price growth within the Reserve Bank’s target range of 3 percent to 6 percent, the longest run since 2015. The Monetary Policy Committee, which was increased to seven members last month with the appointment of Fundi Tshazibana to the panel, will announce whether it’s changing its benchmark lending rate next week Wednesday. An unchanged stance would mark the fourth straight meeting in which the rate is held at 6.75 percent.

“Some of the more hawkish members of the committee are likely to move onto the dovish side next week,” Jeffrey Schultz, a senior economist at BNP Paribas said by phone in Johannesburg. “As a result we think that there is scope for the SARB to cut by 25 basis points.”

The central bank expects inflation to remain within the government’s target band until at least the end of 2019.

South Africa’s rand was one of the most volatile currencies tracked by Bloomberg last year and has gained about 9 percent versus the dollar sinceCyril Ramaphosa was elected to lead the ruling African National Congress after President Jacob Zuma’s tenure came to an end in December.

Core inflation, which excludes the prices of food, non-alcoholic beverages, energy and gasoline, was steady at a six-year low of 4.1 percent in February.

Traders are now pricing in a 25 basis point cut at the May MPC meeting. Forward-rate agreements starting in three months dropped two basis points to 6.87 percent, or 26 points below the benchmark Johannesburg Interbank Agreed rate.