Inflation in South Africa is likely to quicken this year while growth will only pick up modestly, leaving the central bank with no room to cut interest rates, a Reuters poll found on Thursday. The South African Reserve Bank has kept its benchmark repo rate unchanged at a four-decade low of 5.00 percent since last July, despite recent above-inflation wage settlements which helped calm the worst mining sector unrest since apartheid.
The rate is expected to remain unchanged for all of this year, with analysts then pencilling in a 50 basis point rise by the end of 2014. Economists marginally raised their average inflation forecast for this year, to 5.8 percent from 5.7 percent in last month's survey, taking it closer to the top of the central bank's 3-6 percent comfort zone.
Inflation is forecast to dip to 5.5 percent next year, according to the poll of 19 economists conducted Mar. 25-Apr. 3. "The lagged effect of a weaker rand means that inflation is likely to remain elevated for the first half of 2013," said Shilan Shah of consultancy Capital Economics in London. "(But) we think most of the correction in the rand has already taken place and do not expect further sharp falls."
A Reuters foreign exchange poll on Wednesday showed the rand is expected to hold steady at around 9.20 versus the dollar for most of this year. Growth in Africa's biggest economy is expected to stay relatively subdued this year. Gross domestic product (GDP) is seen expanding at a median 2.6 percent, little changed from 2.5 percent last year. That compares with 6.8 percent for emerging African powerhouse Nigeria in a poll conducted last week.
"The economy will fluctuate around current levels... until growth picks up in mid-2014 to a point where interest rates may need to be increased," said Frank Blackmore, associate director at KPMG. South Africa's quarterly economic growth quickened to 2.1 percent in the fourth quarter of 2012, more than expected but anaemic compared to much of the last decade.
Manufacturing output, which contributes about 15 percent to GDP, grew by 5 percent while agriculture expanded by 10 percent, making up for a contraction in mining production due to last year's strikes. Analysts are wary about prospects for South Africa's largest trading partner Europe, where the economy shows no sign of recovering any time soon.
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