(Bloomberg) — South Africa’s inflation rate moved closer to the ceiling of the central bank’s target range in March, highlighting the tough choice it faces in striking a balance between taming price growth and supporting the nation’s sluggish economy.
Annual inflation accelerated to 5.9% from 5.7% in February, Statistics South Africa said Wednesday in a statement on its website. The median of 13 economists’ estimates in a Bloomberg survey was 6.0%.
The South African Reserve Bank officially targets price growth in a band of 3% to 6%, while its monetary policy committee prefers to anchor expectations close to the midpoint of that range. Inflation, stoked by record-high fuel prices and rising food costs, has now breached 4.5% for 11 consecutive months.
While the implied policy rate path of the central bank’s quarterly projection model, which the MPC uses as a guide, last month indicated a more aggressive hiking cycle — with a repurchase rate of 5.06% by year-end — tightening could be delayed after floods wreaked havoc in the KwaZulu-Natal province.
The coastal province, home to the nation’s biggest port, is the second-largest contributor to South Africa’s economy and damage caused by the worst flooding in almost three decades is expected to run into billions of rands. The impact is poised to reverberate across South Africa as the disaster also hit operations at clothing retailer Pepkor Holdings Ltd., forced Toyota Motor Corp. to suspended production and damaged paper company Sappi Ltd.’s facilities, and could see the central bank lower its 2022 economic growth forecast of 2%.
While the MPC has raised the benchmark rate by a cumulative 75 basis points to 4.25% since November, a pause in the hiking cycle at a time when the U.S. Federal Reserve and central banks in other developed markets are moving to reduce stimulus measures may make local assets less attractive to offshore investors.
Forward-rate agreements starting in one month, which are used to speculate on borrowing costs, show traders are fully pricing in a quarter-point increase, and an 85% chance of a 50 basis-point hike in the key rate at the MPC’s next meeting scheduled for May 19.
