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Standard Bank Group
The SA Daily 26 October 2018

Rates still seen as steady this year

Shireen Darmalingam

  • September CPI this week has met our expectations at 4.9% y/y, unchanged from August. Consumer prices increased by 0.5% m/m in September after the 0.1% contraction in August.
  • September CPI includes the quarterly rental inflation survey which is an important gauge of the demand-pull inflation pressures which reflect a weak housing market. Actual rentals were up 1.4% m/m (and 4% y/y) and owners’ equivalent rent increased by 1.2% m/m (3.7% y/y). Weakness was broad-based, with houses (3.5% y/y for both actual and owners’ equivalent rent) even weaker than flats and townhouses (4.3%-4.8% depending on the measure and category).
  • The weak housing market supports our view that the South African Reserve Bank (SARB) will keep interest rates at 6.5%. Nonetheless, the bank might feel impelled to hike by 25 bps given its concerns about jeopardising its inflation-fighting credibility should it fail to respond to significant currency and price shocks (see report CPI steady at 4.9%, ready to rise of 24 October, by Elna Moolman).
  • However, we believe that the SARB should not hike interest rates before having assessed the December 2018 surveyed inflation expectations which, if unchanged, would negate the need to protect the bank’s credibility through policy tightening.

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