RATES WATCH MAY 2015: STEADY ON

With a major public sector strike averted things are looking pretty stable, relatively speaking, in both the local and international economy. And this means that there is little incentive for the SARB to announce a change to the interest rate at its Monetary Policy Committee meeting later today.

South Africa’s inflation figure for April is 4.5% and this is lower than anticipated. While inflation is trending upward (and this is likely to continue well into 2016) it has not yet breached the SARB’s upper target of 6%. As inflation is the main driver behind SARB monetary policy this pleasant surprise lower has released the immediate pressure for a rate increase.

The weakened Rand and the small but sustained gains being made in the oil price indicate that a petrol price increase is likely to come in the next few weeks and this increase will bump the inflation rate up into high gear. This is expected to happen in the 3rd or 4th quarter of 2015 and will likely see the SARB make the increase to the rate that last year’s steep decline in the oil price allowed them to postpone for a year.

Without significant positive changes to South Africa’s economic outlook a rate increase is inevitable. But happily it won’t happen today!

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