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Higher oil prices and weaker rand a risk to inflation – analysts
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Higher oil prices and weaker rand a risk to inflation – analysts

The South African Reserve Bank’s monetary policy committee (MPC) is expected to take a hawkish stance and keep interest rates unchanged next Thursday, analysts expect.

The rand and other emerging market currencies lost gains made this week, given a rise in US Treasury bond yields to 3.11%.

The local currency reached an intraday low of R12.82 to the greenback on Friday, as dollar strength surged on the back of US Treasury yields which were still rallying in the afternoon, Wichard Cilliers, director and head of dealing at TreasuryONE, told Fin24.

FNB chief economist Mamello Matikinca said in an economic report released on Friday that the MPC’s decision would be largely influenced by April’s inflation print to be released next Wednesday.

“We don’t believe a one percentage point jump in CPI (consumer price inflation) will be enough to justify an interest rate hike, but we expect the tone of the governor’s speech to turn decidedly hawkish,” she said.

April’s inflation data will take into account the higher VAT rate as well as the fuel hike of 72 cents per litre. FNB expects inflation to increase from 3.8% year-on-year in March to 4.8%. Inflation is still expected to remain within the SARB’s 3% to 6% target band.

“Of chief concern will be the spike in the oil price which reached $80/bbl this week, as well as rand depreciation on the back of a stronger US dollar.