South Africa’s Reserve Bank said there were signs a fragile local economic recovery was becoming more self-sustained but a rise in global commodity prices posed a risk to the inflation outlook.
In its 2010/11 Annual Report, the central bank said its focus remained on securing price and financial stability.
“The risks to the inflation outlook are assessed to be on the upside. We will continue to give primacy to our objective of price stability, and implement monetary policy within a flexible inflation-targeting framework,” it said.
Higher oil and food prices have been the main forces behind inflation ticking up to 4.2 percent year-on-year in April from a five year low of 3.2 percent in September, Reuters reports.
Inflation has been inside a 3-6 percent target range since February 2010 and the bank reiterated it should remain in that band until the end of 2012, except for an expected temporary breach in the first quarter of next year.
The central bank has kept interest rates in Africa’s biggest economy at 30-year lows this year, holding the repo rate at 5.5 percent after 650 basis points of cuts from December 2008 to December 2010.
Its next move is expected to be up but the bank gave no hints as to the timing of any tightening, and Governor Gill Marcus declined to answer questions on monetary policy at a news conference after the release of the report.
A strong rand — the currency has gained 13 percent against the dollar in the last year — has helped contain inflation.
The bank said it continued accumulating foreign exchange during the year, purchasing $10.3 billion in the 12 months to March 31 — a process Marcus said would extend into this year despite the bank racking up a 1.2 billion rand loss.
“The reserve bank is not for profit. We take decisions in the interest of the country and the exchange rate is important in terms of its impact,” she said, adding that the bank did not target a specific level for the rand.
The bank said sovereign debt problems in peripheral eurozone countries still posed a risk to the global recovery and continued to affect domestic economic conditions.
The economy grew by a stronger-than-expected 4.8 percent in the first quarter of this year but growth in manufacturing output slowed sharply in April, raising worries that the momentum might not be maintained in the second quarter.