Subdued growth outlook puts economy under pressure
The Reserve Bank’s quarterly bulletin released this week revealed an economy plodding along. The large current account deficit, the gap between what the country is exporting and what it is importing, came in higher than market expectations at 6.5% for the last quarter of 2012.
The large deficit is expected to put continuing pressure on the currency. With a weaker rand comes the risk of rising inflation as the costs of key items such as fuel and food are likely to increase.
South Africa pursues a policy of keeping inflation to within a target band of 3% to 6%. Upward pressure on inflation, however, limits the Reserve Bank’s room to drop interest rates, something governor Gill Marcus warned of on March 8.
“Our room for further accommodation is constrained by the need to keep inflation within the target over a reasonable time horizon,” said Marcus.