South African inflation slowed more than economists expected in July, reviving speculation policy makers will cut interest rates for a second time this year to spur the economy.
The inflation rate fell to a 14-month low of 4.9 percent from 5.5 percent in June, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 18 economists was 5.2 percent. Prices rose 0.3 percent in the month.
“It has opened up the chance for a September cut,” Peter Attard Montalto, an economist at Nomura International Plc. in London, said in a telephone interview today. “There is more disinflation to come from here.”
The Reserve Bank cut its benchmark repurchase rate by half a percentage point to 5 percent last month, the first adjustment in 20 months, to help support growth in Africa’s biggest economy. Governor Gill Marcus said on July 29 further reductions are not automatic and should not be taken for granted, tempering expectations of another cut.
Today’s data has rekindled that speculation. The yield on the forward-rate agreement due in four months dropped 5 basis points to 4.88 percent after the data was published, indicating that traders are beginning to price in the chance of a cut in that period. The Monetary Policy Committee is set to make its next rate decision on Sept. 20.
The rand gained to 8.2810 against the dollar as of 10:52 a.m. in Johannesburg from 8.2983 before the data was released. The yield on the benchmark bond due in 2015 dropped 3 basis points, or 0.03 percentage point, to 5.54 percent.
Finance Minister Pravin Gordhan has said the economy will probably expand at a slower pace than the 2.7 percent forecast by the government in February as the debt crisis in Europe persists.
Growth in manufacturing, which accounts for about 15 percent of the economy, slowed to 0.8 percent in June, while business confidence declined to the lowest level in 12 years last month.
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