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South African Economic Update

South African Economic Update

HERSCHEL JAWITZ, CEO OF JAWITZ PROPERTIES COMMENTS ON THE CURRENT SOUTH AFRICAN ECONOMIC STATUS AS HE SEES IT.

The Reserve Bank decided to keep interest rates on hold last week following renewed speculation that there may be scope to reduce rates after very positive inflation data.

The latest inflation data for April 2017 came in at 5.3% (from 6.1% in March) which is the lowest inflation numbers since 2015 and the first time inflation has fallen below 6% – which is the Reserve Banks stated upper limit – since late in 2016. Part of the reason for the drop in inflation was the fall in food price inflation as a result of better rains and expected better crops.

Despite the positive inflation news, the Reserve Bank is concerned about the risk of further ratings downgrades and the impact that this may have on our currency and thus inflation. A weak currency gives rise to inflationary pressure. The ratings downgrade risk is as a direct result of our current political situation.

The comment from the Reserve Bank was that they need to see a trend of inflation staying below the 6% limit before they will cut interest rates however they do believe that we are at the end of the interest rate tightening (increasing) cycle. This is positive.

Furthermore as a result of a strengthening rand, it seems likely that we will get a petrol/diesel price reduction  – estimated at 40 cents – in the next month.

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