SA’s inflation expectations drop

For the first time in two years, South Africa’s inflation expectations dropped, suggesting price pressures have peaked and the central bank will be able to keep interest rates on hold, Fin24 reported.

Average inflation expectations for this year fell to 6.1% in the third quarter from 6.5% previously, according to a survey released on Monday by the Stellenbosch-based Bureau for Economic Research.

The survey results influence decision making by the South African Reserve Bank’s (SARB) monetary policy committee, which prefers to anchor inflation expectations close to the 4.5% midpoint of its target range.

According to Stats SA, inflation stood at 4.7% in July. At the fourth monetary policy announcement, SARB kept the repo rate unchanged at 8.25%. Year to date, SARB hiked the repo rate by 125 basis points.

Similarly, the Bank of Namibia (BoN) at the fourth monetary policy announcement in August kept the repo rate unchanged at 7.75%, 50 basis points behind South Africa.

According to the Namibia Statistics Agency (NSA), inflation stood at 4.7% in August. The Bank of Namibia projects inflation to average 5.3% in 2023.

Reserves

Data released by the central bank indicated that the stock of foreign reserves increased to N$54.1 billion in July from N$52.9 billion recorded at the end of June 2023. The reserves are sufficient to cover imports for 5.7 months.

The foreign reserves translated into 5.7 months of import cover, remaining above the international benchmark adequate to support the currency peg between the Namibia dollar and the South African rand.

Market Watch yesterday reported that as at 28 August 2023, foreign exchange reserves were ten times more than the currency in circulation (CIC). International reserves stood at N$53.1 billion, while the currency in circulation was recorded at N$4.9 billion.

The member states in which the South African rand circulates should maintain foreign reserves equal or in excess of the currency in circulation.

South Africa’s next monetary policy announcement is expected to take place on 21 September, while the fifth announcement by the Bank of Namibia is expected to take place on 25 [email protected]