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South Africa inflation up, though rates still forecast on hold

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-South African inflation edged higher in August but was well within the central bank’s target range and analysts said they still expected interest rates to be left unchanged this week.

Headline consumer inflation rose to 4.8% year-on-year in August from 4.7% in July, while core inflation also increased to 4.8% year-on-year from 4.7% in July, Statistics South Africa data showed.

The South African Reserve Bank (SARB) targets inflation of between 3% and 6% and likes to see it sustainably around the midpoint of that range.

Economist Elize Kruger said the fact that inflation had stopped falling in August could encourage one or two members of the SARB’s five-member Monetary Policy Committee to advocate another rate hike.

But Kruger said she was sticking to her forecast that the repo rate would be maintained at 8.25% on Thursday in a “hawkish pause”.

“This economy remains firmly in ‘muddle-along’ mode, unable to gain sustainable momentum and the monetary policy stance is already sufficiently restrictive for the current state of growth and inflation,” she added.

Jason Tuvey at Capital Economics wrote in a research note that he also doubted the SARB would resume policy tightening after its “hold” decision in July, after 10 consecutive hikes.

“The rise in inflation was modest and, while the headline rate is likely to hover around 5% over the coming months, we think that officials will have taken some comfort from the dip in inflation expectations in Q2,” he said.

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