SA's CPI slows further, door open for rate cut

| Thursday June 24, 2010 00:00

Statistics South Africa said yesterday headline inflation slowed to 4.6 percent year-on-year in May, bang in line with Reuters' forecasts and the lowest reading since May 2006, from 4.8 percent in April.

On a monthly basis, CPI was steady at 0.2 percent, also in line with expectations.

Inflation has eased significantly since peaking near 14 percent in 2008. Analysts said the near-term CPI outlook is favourable especially with easing food inflation, a key driver previously.

With inflation cooling, the South African Reserve Bank cut interest rates by 550 basis points between December 2008 and March 2010 to a three-decade low, to support an economy that was in its first recession in almost two decades last year.

'(Inflation) is in line with expectations, but this does not mean that there is clarity on the interest rate outlook,' said Carmen Nel, economist at Rand Merchant Bank.

'Our base case is still for the Reserve Bank to keep rates unchanged but a lot depends on the exchange rate,' she added.A relatively strong rand was part of the reason the central bank cut interest rates by 50 basis points in March, which was the first reduction since August 2009.

Data have pointed to a bumpy economic revival including weak consumer demand and waning confidence among households and manufacturers, leading some economists to price in another rate cut at the SARB's next policy meeting in July or before the end of the year.

The rand was largely steady at 7.5660 against the dollar at 1000 GMT, while the yield on the 2015 bond ticked up 0.5 basis points to 7.935 percent after the data.-(Reuters)