South Africa faces rising risks to its inflation outlook due to commodity prices, and inflation may move to the upper end of the 3% to 6% target range sooner than expected, Reserve Bank Governor Gill Marcus said.
In a speech posted on the Bank’s website, Marcus said rising global and domestic prices were likely to pose a challenge to monetary policy in the coming months. She reiterated that the likelihood of further loosening was limited.
“While inflation appears to be under control, there are increasing risks to the outlook posed by rising global commodity prices, particularly food and oil prices,” Marcus said.
“Should food and oil prices impact on domestic inflation by more than is currently expected, we may see inflation moving towards the upper end of the target range sooner than expected.”
The Reserve Bank left its key repo rate unchanged at 5,5% in January and signalled the possible end of a 650 basis point easing cycle that began in December 2008. The cuts were partly aimed at boosting growth in Africa’s biggest economy, which slumped into recession in 2009.
Marcus said recovery from the downturn had been relatively hesitant, but recent indicators were more positive and pointed to it being sustained.
The Reserve Bank sees the economy growing by an average 3,4% in 2011 and 3,6% the following year, far below the 5% average expansion seen between 2004 and 2008.
Marcus said manufacturing, which accounts for about 16% of GDP, remained under pressure, in part because of the strength of the rand hitting export competitiveness.
Traders have reported more aggressive central bank intervention in the market this year to buy foreign exchange, helping weaken the currency after gains of 12% against the dollar last year.
Data from the central bank on Monday showed net gold and foreign exchange reserves stood at $44,451-billion at the end of January from $43,353-billion in December. – Reuters