Article written by Prieur du Plessis, editor of the Investment Postcards from Cape Town blog.
By Cees Bruggemans, Chief Economist of FNB.
SARB kept rates unchanged, prime staying at 9% for now.
SARB upped its inflation forecast for 2011 to 5.1% (4.7%) and for 2012 to 6% (5.7%).
It sees these inflation increases mostly due to supply side cost pressures, with an absence of demand price pressures (for the economy is still only growing modestly, with much slack remaining).
It is only when such supply side pressure were to give way to second round pricing effects, becoming embedded in generally higher inflation, that the SARB may feel the need to start raising rates.
For that reason it promises to remain most vigilant.
What it also means is that although the SARB is forward-looking, it wants positive proof of generalized acceleration in inflation before acting.
This formulation gives the SARB substantial discretion to decide when to respond to the changing inflation tenor in an economy that is only gradually accelerating.
The market discounts a 50% chance of the first 0.5% increase by September, fully discounting that first increase by November. The market sees interest rates rising by some 2% over the next 12-18 months.
Source: Cees Bruggemans, FNB, May 12, 2011.
Vigilant SARB keeps rates unchanged for now was first posted on May 14, 2011 at 6:30 am.
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