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South African Inflation Steady in May, Interest Rate Cuts Unlikely Soon

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louis Buyisiwe

Jun 19, 2024

Inflation remains at 5.2% as the central bank maintains a cautious stance, with rate cuts anticipated later in the year

Shopping in South Africa

South African inflation remained stable in May, maintaining a year-on-year rate of 5.2%, as shown by data released on Wednesday. This figure, unchanged from April, aligns with economists' forecasts but remains above the South African Reserve Bank's (SARB) target of 4.5%. Consequently, analysts do not foresee any imminent interest rate cuts.


The SARB has held its main interest rate at its highest level since 2009 for over a year to achieve its inflation objective. Despite these efforts, inflation has stayed above 5% for several months. The central bank projects that inflation will stabilize at 4.5% by the second quarter of 2025.


A Reuters poll suggested that the SARB might wait until November to cut its repo rate. However, Capital Economics analyst David Omojomolo indicated that the formation of a government of national unity following last month's election could alleviate some of the central bank's fiscal concerns, potentially leading to a rate cut before the year's end.


Annabel Bishop from Investec bank noted that the central bank's stance would likely remain hawkish for the time being. The recent political developments saw five parties joining the African National Congress (ANC) in a unity government after the ANC lost its majority in the May 29 vote. This new coalition, including the pro-business Democratic Alliance, has reassured markets, especially since it excludes the more radical Economic Freedom Fighters and uMkhonto we Sizwe, led by former president Jacob Zuma.

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