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South Africa holds rates as inflation gains pace

AFP
20 March 2013 | South Africa
A customer pays a vendor at a market in Durban on May 22, 2010.  By Rajesh Jantilal (AFP/File)
A customer pays a vendor at a market in Durban on May 22, 2010. By Rajesh Jantilal (AFP/File)

JOHANNESBURG (AFP) - South Africa's central bank held off cutting interest rates to boost the continent's largest economy Wednesday, as rising inflation bound the hands of policymakers.

South African Reserve Bank governor Gill Marcus announced interest rates would remain at five percent despite a bleak economic outlook.

South Africa is struggling under weak growth and crippling underemployment.

"Further accommodation remains constrained by the upside risks to the inflation outlook," Marcus said explaining the decision.

She cited "excessive" wage increases in the wake of labour unrest and the weak rand as factors fuelling damaging inflation.

The rand has lost around 20 percent of its value against the dollar in the last year.

"Risks posed by the depreciation of the rand exchange rate have overshadowed the more favourable developments, including lower electricity price increases and some moderation in food price inflation."

Earlier Wednesday official data showed South African consumer inflation jumped to 5.9 percent in February, pushed higher by transport costs, health insurance and food basics like milk, eggs and cheese.

Statistics South Africa reported that inflation ticked a half-point higher, to come within striking distance of the reserve bank's six percent ceiling.

Marcus admitted that inflation may average 6.3 percent in the third quarter of the year.

Even ahead of the announcement Adriaan du Toit of Standard Bank said there was "zero probability" of the bank cutting interest rates to boost the economy.

Traders have begun to chatter about the possibility of a rate increase.

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