Inflation settles but rand trips up rate cut

Headline inflation has settled near the upper end of the Reserve Bank's target band of 3%-6% but the bank's monetary policy will remain flexible, governor Lesetja Kganyago said yesterday.

Economists suggested that the lower-than-expected inflation figure might open the door for the bank to trim interest rates. But a rand lurching up and down in response to political developments might stay its hand.

Kganyago said prices were sensitive to currency shocks and sharp increases in food-price inflation, which together were fuelling high wage demands in a stalling economy struggling to create jobs.

"We need prices, and wage demands, to abide by the inflation target so that we achieve a lower inflation rate more consistently," Kganyago said at a labour law conference.

Headline inflation slowed more than expected yesterday to 6% year-on-year in July, its lowest this year, according to Stats SA.

Economists have said that the bank might cut lending rates but much depends on currency swings.

The rand has weakened 4% since it emerged that Finance Minister Pravin Gordhan had been ordered to report to the Hawks.