Money and Markets

A surge in SA inflation may have killed further interest rate cuts

Business Insider SA
The South African Reserve Bank (SARB) cut the benc
File photo of Lesetja Kganyago. (Getty)
  • Consumer inflation spiked to above 3% in July - and registered the big monthly increase since February 2016.
  • While some economists were expecting one or two further interest rates to help salvage the distressed SA economy, inflation pressures may put an end to those hopes.
  • That said, interest rates are expected to stay at these low levels for a long time.
  • For more stories, go to

Consumer inflation spiked unexpectedly to 3.2% in July, Statistics South Africa announced on Wednesday. This is a massive 45% increase from 2.2% in June - and the biggest one-month rise since February 2016.

According to Stats SA, the big monthly move was largely due to sharp fuel prices and municipal tariffs, with water tariffs increasing by almost 10%.

Source: Statistics SA

While some economists were expecting another one or two interest rate cuts this year, the nasty inflation surprise may dissuade the monetary policy committee of the SA Reserve Bank from lowering rates any further. There are already signs of hesitation: two of the five committee members voted against another cut in July. So far this year, rates have been cut by 300 basis points, to the lowest level in half a century.

Chief Economist of Econometrix Dr Azar Jammine believes the latest inflation data will clearly dampen any chances of other interest rate cuts.

“Especially when you bear in mind that the repo rate is currently at 3.5% and this jump in inflation means that there is a good chance that inflation will rise to well over 4% in the coming year.

“That being the case, we are looking at negative real interest rate. Knowing the way the Reserve Bank behaves, there is very little chance that they will cut interest rates again,” Jammine said.

That said, interest rates also won’t go higher soon.

The economy is still in deep distress, with economists expecting a contraction of more than 40% in the second quarter amid one of the most stringent lockdowns in the world.

“I think it will be a couple of years until we see a rate hiking cycle again,” says Citadel’s portfolio manager Mike van der Merwe.

He thinks South Africa will likely follow big developed markets such as the US and the UK, which are not looking to increase interest rates until at least 2022. 

 “SARB will keep rates stable and flat for the foreseeable future,” he said.

Chief Economist at Investec Annabel Bishop echoed the same sentiment. Although she anticipates that inflation will rise further this year, towards 4.0%, “we do not believe there is any pressure for interest rates to rise or fall currently from inflation,” she said. 

The monetary policy committee’s next decision on interest rates will be announced on September 17th.

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