Economic growth slowed in the second quarter and consumer prices were unchanged in August from the year-ago period, buttressing the central bank’s guidance, according to Nora Szentivanyi, an economist at JPMorgan Chase in London.
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Last week, the US Federal Reserve surprised financial markets by issuing a significantly more dovish-than-expected statement justifying its decision to keep its benchmark interest rate on hold.
Last week, Federal Reserve officials deferred action on interest rates. His comments, and the bank’s refusal to tighten policy, have led to concerns about its independence. The stabilisation of inflation expectations around the target is likely to support that price and wage-setting will be consistent with the inflation target over the medium term as domestic demand growth strengthens.
In attempting to find the balance between keeping inflation under control but not unduly undermining short-term growth, the South African Reserve Bank has decided to keep interest rates steady.
The governor says electricity supply and low business and consumer confidence are worrying factors but the exchange rate is the main threat to inflation.
The CBT has been pushing up the weighted average cost of funding for banks towards 9% in preparation, which strengthens the view that the benchmark rate will settle in the c.9% region by end-2015, states Commerzbank. Gross domestic product grew 2.7 percent in the second quarter from a year earlier after a 3.5 percent expansion in the previous three months. The monetary policy stance of globally influential central banks remained unchanged although continues to be different in recent months: the ECB and the Bank of Japan continued their asset purchaseprogrammes, while the US Fed was preparing for the appropriate timing and magnitude of its interest rate increase postponed to a later date than the market had expected. Core inflation – which excludes food, fuel and electricity – measured 5.3% in August, down from 5.4% in July. Andrew Haldane, the Bank of England’s chief economist, has meanwhile been airing the prospect of a further cut instead of a rise. One fear is that the longer interest rates are held at emergency lows, the greater the potential for trouble when they do eventually go up.
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“There are a number of risks to the upside inflation outlook”.
