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The South African Reserve Bank (SARB) concludes its Monetary Policy Committee (MPC) meeting on Thursday the 19th of July and in turn, will announce changes (if any) to benchmark lending rates within the country.
Consumer Price Index
Consumer Price Index (CPI) data is a key metric for the Reserve Bank in determining the path of interest rates as their mandate is to target inflation with monetary policy. Wednesday’s CPI report from Statistics South Africa, for June 2018, showed an annualised increase in headline inflation of 4.6%. The figure was slightly higher than that of the May 2018 inflation reading (4.4%), although still below consensus estimates which predicted a 4.8% increase in inflation. The most noticeable price increase (as expected) has been that of fuel costs which increased by 13.5% annualised. Fuel costs account for roughly a 5% weighting in the CPI index. Food which has the largest weighting (15.5%) in the Headline CPI figure, has seen inflation subdued at 3.1% annualised, attributable to a healthier looking agricultural sector.
A rand is often seen as a fear factor for the SARB, as its volatility and sensitivity to risk off sentiment can negatively impact inflation particularly that of fuel costs. However, while we have seen a weakening of the rand against the majors (since February 2018) with relatively large capital outflows from bond and equity markets over the last three or so months, the year on year change in the dollar Rand exchange rate is roughly only 1.8%.w