CPI slide puts pressure on MPC for further monetary easing

JOHANNESBURG – The country’s Consumer Price Index (CPI) continued its downward trend in May, falling to 2.1 percent from 3 percent  in April, putting more pressure on the SA Reserve Bank (SARB) to continue its monetary easing regime next Thursday.

Data from Statistics SA (Stats SA) yesterday showed that the CPI eased to its lowest reading in 15 years in May, mainly on the back of weakening fuel prices. Stats SA said the CPI was in line with the year-on-year market consensus, and below the central bank’s target range of between 3 and 6 percent. 

SARB’s Monetary Policy Committee (MPC) is scheduled to meet from next Tuesday and announce its decision on Thursday. Pressure has mounted for the MPC to cut interest rates further in order to stimulate the country’s stagnant economy amid the Covid-19 slowdown.

Sanisha Packirisamy of Momentum Investments said depreciating inflation boded well for another rates cut.

“In our view, decimated demand and anchored inflation expectations leave room for the SARB to ease interest rates by up to a cumulative 50 basis points in 2020,” Packirisamy said. “Given front-loaded bolder policy decisions taken earlier in the year, we could see the SARB move to increments of 25 basis points.”