Johannesburg - The South African Reserve Bank said it faces difficult policy choices in an environment of rising consumer prices and weak economic growth.
“The inflation outlook has deteriorated and inflation is expected to remain outside the target for an extended period,” the bank said in its biannual Monetary Policy Review released today in the capital, Pretoria.
The bank left its benchmark repurchase rate unchanged at 5.5 percent for a second consecutive meeting last month as growth concerns outweighed worries about inflation.
Consumer prices rose 6.1 percent in April, exceeding the 6 percent upper limit of the bank’s target, while the economy contracted for the first time since a 2009 recession in the first quarter.
“Although the second quarter is expected to show some improvement, the risks to the 2014 forecast are to the downside,” the central bank said today.
“The monetary policy stance remains supportive of South Africa’s recovery.”
Reserve Bank Governor Gill Marcus increased interest rates in January for the first time in more than five years as a weaker rand fuelled inflation.
Monetary policy is in a rising interest-rate cycle, the central bank said today.
Further rate increases will be “within a flexible inflation-targeting framework that allows MPC decisions to remain sensitive to changing data and the fragility of the domestic recovery,” the bank said.
A four-month strike that shut mines owned by Anglo American Platinum, Impala Platinum and Lonmin was the main contributor to the economy’s 0.6 percent contraction in the three months through March.
“Changes in the structure of mining unionisation over the past few years have caused multiple, often violent disruptions to production,” the bank said.
“These events have been costly in several ways, depriving households of wage income and retailers of customers, damaging exports, and ultimately compromising investment and employment.”
The rand fell 0.5 percent against the dollar to 10.7346 as of 6:09 p.m. in Johannesburg, extending its decline this year to 2.3 percent. - Bloomberg News