By Loushe Jordaan Gilbert
The argument about whether the South African Reserve Bank (SARB) will cut rates has shifted to how much it will cut rates after consumer inflation dropped to its lowest level in three years last month.
According to Stats SA, the annual inflation rate decreased to 4.6% in July from 5.1% in June. It is only ten basis points over the goal midway set by the central bank.
Economist Dawie Roodt believes the drop in the consumer interest rate is a step in the right direction in terms of lowering the repo rate.
Speaking on News Beat on Thursday, Roodt said the low inflation rate is wonderful news for the economy.
“SARB will cut the interest rates in the next month; the only question is by how much. There is the possibility that the interests’ rates will be cut by half a percentage or 50 basis points reduction in interest rates. There is another possible approach that could be followed, which I would actually prefer and that is the reserve bank cutting interest rates by 25 basis points but at the same time the Minister of Finance announces a lower inflation target and that will prevent the reserve bank from cutting interest rates too much, but it would contribute to inflation being even lower in South Africa,” he added.
As things stand, chances remain high that the reserve bank will for the next few meetings reduce interest rate.
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