Giant rate hike looms in South Africa

South African inflation decelerated for the first time since January, a slowdown that’s unlikely to sway the central bank from delivering an unprecedented second consecutive 75 basis-point hike in interest rates.The headline consumer-price index rose 7.6% from a year earlier, compared with 7.8% in July, Pretoria-based Statistics South Africa said Wednesday in a statement on its website. That matched the median estimate of 17 economists in a Bloomberg survey.More monetary policy tightening remains in the cards because the central bank wants to keep inflation expectations anchored and alleviate pressure on the rand. Governor Lesetja Kganyago said in a September 8 interview that the monetary policy committee must do whatever it takes to curb price growth until it’s under control and on a downward trajectory toward the midpoint of its inflation-target band.All 21 economists polled by Bloomberg expect the MPC to hike by three-quarters of a percentage point to 6.25% on Thursday. Forward-rate agreements, used to speculate on borrowing costs, show traders are pricing in 68 basis points of tightening this week. That compares with expectations of three-quarter percentage increase before Wednesday’s inflation data.Rate projectionAt the last meeting in July, the implied policy rate path of the central bank’s quarterly projection model, which the MPC uses as a guide, indicated the benchmark will be at 5.61% by year-end.Rate setters have already raised the key rate by a cumulative 200 basis points since November. Core inflation, which excludes volatile items like food and fuel, slowed to 4.4%., from a five-year high of 4.6%, which could show that underlying prices pressures are cooling.Though international oil prices and global food costs appear to be easing, the domestic inflation outlook remains clouded by the risk of a de-anchoring in price growth expectations. Previous spikes in food and fuel costs and increased pressure on the rand from accelerated monetary tightening by the US -- including a 75 basis-point rate hike expected on Wednesday - may lead to second-round wage and price effects.Yields on South African benchmark bonds reversed an earlier rise after the release of the data, falling four basis points from closing levels to 10.96%. The rand narrowed losses and was at 0.2% weaker at 17.7202 per dollar on Wednesday.-Fin24

Giant rate hike looms in South Africa

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Giant rate hike looms in South Africa

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