South Africa’s central bank sees the rand and fuel prices as the main risks to the inflation outlook and anticipates a temporary breach of its 3 percent to 6 percent target range, Governor Gill Marcus said.
The rand “does create challenges for monetary policy,” Marcus said in an address to German business executives in Johannesburg today. “It remains an upside risk to the inflation outlook” and will contribute to a target breach.
Inflation pressures are easing in South Africa as the price of oil has retreated and as the rand is poised for the first monthly gain in four against th dollar, lowering the expense of imports and giving policy makers room to hold borrowing costs at the lowest level in more than 30 years.
While the Reserve Bank has become more tolerant of inflation close to the top of its target, rising prices have constrained policy makers from stimulating the economy, Marcus said last month. Economic growth has been limited by mining output that hasn’t recovered fully from strikes last year and by curtailed demand for goods from Europe because of a recession there.
South Africa’s growth outlook is “intricately” linked to Europe’s, and the downside risk to economic growth in advanced economies remains, Marcus said.
The central bank held the repurchase rate at 5 percent last month as inflation quickened to 5.9 percent in February. The rate of price increases was unchanged in March, Statistics South Africa said on April 17.
Oil, which South Africa imports, has dropped 9.4 percent this month while the rand has appreciated 0.6 percent against the dollar in the period, paring its decline for the year to 7.7 percent, the most among 25 emerging-market currencies tracked by Bloomberg.
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