THANDI XABA
The inflation figures are a bit more than expected. This comes after reports from Stats SA revealed the monthly increase is a modest 0,2%.
Portfolio Manager and Market Commentator Amelia Morgenrood says “It was a bit shock for the markets, since it places a lot pressure on the Reserve Bank, to hike interest rates. It highlights the current dilemma that the Reserve Bank has.”
She explains the Reserve Bank has the main mandate which is to achieve and maintain price stability in South Africa. “But they can also achieve this, in having a balanced and sustainable economy and economic growth.”
thought it would be just above 6 level, more towards 6.2%.
According to Morgenrood the only way to achieve price stability is by setting an inflation target and this target was set between 3 & 6%, the moment it moves beyond of 6%, Reserve Bank has to make sure it does not spiral out of control. “The only measures they can take are to hike interest rates, unfortunately interest rates not beneficial for economic growth.”
She further says the Reserve Bank has a 50/50% chance that it will hike the interest rate because it’s their main mandate and with inflation rates accelerating far beyond the 6% level, the South African Rand is palced under a lot of pressure. “The bank has to ensure it does not spiral out of control.”
On a good note, Morgenrood adds South Africa is on a nice point. “We have stability in the financial markets, where emerging markets are in favour of international investors, that is positive.”
