ROLLING power blackouts in South Africa risk dragging manufacturing back into recession, just as the industry recovers from strikes, complicating the Reserve Bank’s job as it seeks to raise interest rates.

Investors have pushed out their expectations of the first rate increase, with forward-rate agreements used to speculate on borrowing costs pricing in a 25 basis-point adjustment in six months’ time. At the end of March, they signaled an increase in July.

Manufacturing output, which makes up about 13 percent of the economy, contracted 0.5 percent in February from a year earlier as inadequate power generation capacity forced Eskom to cut supplies. While Governor Lesetja Kganyago has indicated the Reserve Bank’s willingness to raise interest rates to curb inflation pressure, a weaker growth outlook may give policy makers reason to proceed more cautiously.

“The Reserve Bank is between a rock and a hard place,” Busisiwe Radebe, an economist at Nedbank, said last week. “The growth thing, I think, will convince them to actually keep these rates lower for longer.”

South Africa’s economy expanded 1.5 percent last year, the slowest pace since a 2009 recession, and will probably grow 2 percent this year, according to government estimates. Manufacturing expanded for the first time in four quarters in the three months to December, helping to boost gross domestic product by an annualised 4.1 percent.

Eskom is rationing electricity supply because its ageing plants cannot meet demand. Dawie Roodt, chief economist of Efficient Group in Pretoria, estimates the electricity crunch since 2007 has cost the economy more than R300 billion in lost output.

While the Reserve Bank kept its benchmark repurchase rate unchanged at 5.75 percent on March 26, Kganyago warned of higher borrowing costs as oil prices gained 22 percent since January 13, paring its decline since June. The bank raised its inflation forecast for this year to an average of 4.8 percent from 3.8 percent. Consumer prices rose 3.9 percent in February, remaining inside the bank’s 3 percent to 6 percent target band.

“The weak economy will take precedence over inflation in the Reserve Bank’s considerations,” said Abri du Plessis, an economist at Gryphon Asset Management. – Bloomberg