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S.Africa central bank seen on pause to help Africa economy

         Date: 2012-05-21

           Tag: Africa economy, Africa economy bank

Summary: South Africa's central bank is expected to keep its main policy rate unchanged for the ninth meeting in a row next week, hoping the economy will start to show some signs of oomph before it hikes the…

 South Africa's central bank is expected to keep its main policy rate unchanged for the ninth meeting in a row next week, hoping the economy will start to show some signs of oomph before it hikes the rate to curb high inflation next year.

"We forecast inflation to be benign enough to allow the SARB scope to delay the rate-hiking cycle, in the context of a lingering output gap and the fragility of the global economy," said Renaissance Capital economist Elna Moolman.

Even though inflation breached the top end of its 3-6 percent target band this year, the SARB has left interest rates unchanged for 17 months at an over 30-year low, hoping economic growth will pick up pace after a 2009 recession.

Governor Gill Marcus said last week the monetary policy stance was accommodative because of the persistence of the negative output gap - the difference between the economy's growth potential and its actual output.

However, with inflation at the upper end of the target range, there was "limited, if any, room for further monetary accommodation at this stage", she said.

Headline consumer inflation eased to 6 percent in March from 6.3 percent at the start of the year, after an initial breach of the target in November.

The bank expects GDP growth of 3 percent for this year. Preliminary numbers showed 2011 growth at 3.1 percent.

"Sluggish growth remains the key concern. Euro zone problems threaten this further while the resulting financial market turmoil may see a weaker exchange rate and hence more inflation pressure," said Luke Doig, economist at Credit Guarantee Insurance.

The rand has lost nearly 8 percent since the MPC's last meeting at the end of March.

Of the 31 economists surveyed by Reuters, six think there may be room to raise the benchmark rate by 50 basis points before the year is over, while two think inflation may ease enough to allow for a cut before year-end. The others see rates on hold for the rest of the year.


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