Finance news

South Africa’s inflation rate fell into the central bank’s 3 percent to 6 percent target band for the first time in more than two years, giving Governor Gill Marcus room to keep the key interest rate unchanged for longer.

Headline inflation eased to 5.9 percent in October from 6.1 percent in the previous month, the Pretoria-based statistics office said on its Web site today, in line with the median estimate of 23 economists surveyed by Bloomberg. Prices were unchanged in the month.

The Reserve Bank left its repurchase rate unchanged at 7 percent for a third consecutive meeting on Nov. 17, concerned that rising electricity costs will boost inflation, just as six rate cuts since December helped to pull the economy out of recession. Inflation eased last month after the government cut gasoline costs by 5 percent on Oct. 7 as the rand’s 41 percent surge against the dollar since March 5 slashed import costs.

“It’s notable that inflation is back inside the target band,” said Jeffrey Schultz, a macroeconomic strategist at Absa Group Ltd. in Johannesburg. “But this is likely to be fleeting. The Reserve Bank is largely done with monetary easing.”

The central bank previously targeted the CPIX inflation rate, which excludes mortgage costs. That rate, which is no longer calculated, was last below 6 percent in March 2007.

Bonds gained today as investors bet a stronger rand will help to keep inflation inside the target band cash advance loan no fax. The yield on the R157 government bond, due 2015, fell 5 basis points, or 0.05 percentage point, to 8.36 percent. The rand was unchanged at 7.3987 against the dollar as of 11:51 a.m. in Johannesburg.

‘Adequate’

The Reserve Bank said on Oct. 18 that the benchmark interest rate of 7 percent is “adequate” to curb inflation and support economic growth. The bank expects the inflation rate to stay inside the target until the fourth quarter of 2011, when it is expected to average 5.5 percent.

That forecast is based on a 25 percent annual increase in electricity prices over the next two years. Eskom Holdings Ltd., the state-owned power utility, has applied to South Africa’s energy regulator to increase electricity tariffs by 45 percent a year over the next three years.

The central bank cut its key interest rate by 5 percentage points between December and August to help boost the economy, which the government expects will contract 1.9 percent in 2009. The economy expanded an annualized 0.9 percent in the third quarter from the previous three months, ending the first recession in 17 years, the statistics office said yesterday.

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