Outside View
Falling inflation may give Reserve Bank space to ease policy further
However, should inflation expectations fail to fall within the desired rate, the bank may opt to keep rates on hold
The monetary policy committee's decision to lower interest rates indicates that the Reserve Bank is now less concerned about the inflation outlook. The bank has downwardly adjusted its forecast in line with market expectations. The latest inflation print indicates that short-term inflation has indeed improved. Our forecast suggests that this improvement should persist for most of 2018. Food prices continued to moderate, thanks to good rains and a bumper harvest expected for the marketing year. Oil prices have consistently surprised on the downside, combined with a stronger-than-anticipated rand exchange rate, and have translated into petrol price cuts — to date, the consumer has paid around 46c per litre less for fuel. Utility costs — electricity specifically — are expected to be lower than last year. Aggregate demand in the economy should remain weak for the balance of the year. This should keep a lid on short-term inflation. The upshot of demand-led growth weakness is that corpora...
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