More rate cuts expected soon

Inflation rose less than expected in August, increasing the likelihood of interest rate cuts this week and later in the year.

Consumer inflation rose 4.8% year-on-year in August from 4.6% in July, data showed on Wednesday. Economists had forecast 4.9%, following fuel price hikes.

The rate of price increase is well within the Reserve Bank target range of 3% and 6%, and prices rose just 0.1% from 0.3% in July.

The rand responded by strengthening 0.28% to 13.2750 per dollar.

The Reserve Bank monetary policy committee surprised many economists in July by cutting lending rates for the first time in five years. Now markets and analysts are pricing in as many as two more cuts before year-end.

Forward rate agreements point to a 70% probability of lending rates being cut by 25 basis points on Thursday.

Halen Bothma, an economist at ETM analytics, said he expected the bank to cut rates by 100 basis points in the current cycle.

Finance Minister Malusi Gigaba's maiden Budget speech in October and the ANC leadership election in December would be key factors in the bank's future moves, he said.

The rand backtracked this week as bets of another rate hike by the US Federal Reserve resurfaced. However, the currency weathered the shock axing of Pravin Gordhan as finance minister in March and subsequent credit downgrades to junk, and is about 10% firmer since the beginning of the year.

"I don't think [Reserve Bank] governor Kganyago is any more or less hawkish than other monetary policy committee members. Inflation targeting is central to him," Standard Chartered's chief Africa economist Razia Khan said.

"Yet there is also recognition that inflation targeting is what allows for a low interest rate regime, when it is possible and where it is needed, to support growth."