Inflation numbers down in South Africa
Economic data indicates that inflation numbers are down in South Africa, this is leading to growing speculation amongst economists that we could see an interest rate cut. South Africa is seeing 40 year lows in interest rates, however just because inflation is coming down dont get too excited about rate cuts.

Inflation down from 6.1 percent

The news comes as inflation drops from 6.1 percent to 5.7 percent and this seems to be better than most people expected, the market was actually expecting the amount to come down to 5.9 percent so this was a good result for the South African consumer. This may not sound like a large drop but it is actually quite a substantial amount with regards to how economists measure this.

More good news for South Africans

South Africa is also expecting a petrols price reduction of around 70 cents a litre. South Africans have recently gone through a very harsh increase in the petrol price over the past 4 months so this should bring welcome relief to their bottomline.

Inflation within targets

These new inflation numbers are nicely poised within the target range and this always leads to speculation that the South African Reserve Bank will cut interest rates, we however do not believe that they are quite ready to make any cuts at the moment.

The Reserve Bank will still need to measure how weak the economy is and how just how much they think the economy is slowing down.

Is there even a need to cut rates?

If there was a cut in rates by 50 basis points would it even make a huge difference to the South African consumer, sure you may save a few hundred rands on your monthly bond, but would it make a massive difference to the overall economy?

Many experts believe it would not make a massive impact since interest rates may not be the main factor in holding back growth in the economy. Other factors that are more important include lack of investment and the debt crisis in Europe have a much more important impact on the South African market.

Infrastructure developement would probably have a far greater and more lasting impact on the economy than cutting interest rates. Interest rates are at an appropriate and comfortable level in South Africa and probably allow the average person enough space to keep the home fires burning.

Unintended consequences of cutting rates

If the country was to cut rates this could leave us with other problems if the currency started to weaken and then we could be facing further pressure like soaring import costs.
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