April 19, 2017 / 10:26 AM / 5 months ago

UPDATE 1-South African inflation slows as food price rises ease

* Graphic on South Africa's inflation bit.ly/2oKTHE4 (Adds details, analyst comment)

By Mfuneko Toyana

JOHANNESBURG, April 19 (Reuters) - South Africa’s consumer inflation eased in March as the return of rainfall following a severe drought cut into food price inflation.

The slide -- to 6.1 percent year-on-year in March from 6.3 percent in February -- bolstered the likelihood of the central bank will keep interest rates on hold despite recent shocks to the currency. On a month-on-month basis, inflation fell to 0.6 percent from 1.1 percent, Statistics South Africa said on Wednesday.

The rand retreated about 12 percent after of President Jacob Zuma’s decision to fire respected finance minister Pravin Gordhan in early April. The firing lead at least in part to two credit downgrades to “junk” and a spike in investor concerns over the direction fiscal policy.

Such moves would normally boost inflation, putting pressure on central banks to raise interest rates.

But Paul Sirani, chief market analyst at Xtrade, said the data would let the South African central bank stand pat.

“Today’s figure shows that prices are heading in the right direction, though policy makers are likely to sit on their hands and seek further reassurance from next month’s figures,” he said.

Food inflation, which climbed close 12 percent in 2016 as the worst drought in decades swept through southern Africa, continued to retreat, slowing to 8.7 on a yearly basis.

At its March policy meeting, South Africa’s Reserve Bank (SARB) said it forecast consumer price growth to average 5.9 percent in 2017 and that it had reached the end of its tightening phase, adding that any rate cuts would depend on data.

However the bank, which has raised benchmark lending rates by a cumulative 200 basis points since 2014, warned on April 10 that the sharp fall in the currency following Zuma’s midnight cabinet reshuffle had caused the exchange rate to re-emerge as a major risk to inflation.

Reporting by Mfuneko Toyana; Editing by James Macharia/Jeremy Gaunt

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