PRETORIA: Despite a bleak economic outlook South Africa’s Reserve Bank opted to leave interest rates on hold on Thursday, fearing any move to stimulate the economy now could fuel inflation.

The bank left its key interest rate at 5.0 per cent, underscoring a growing quandary facing policymakers in Africa’s largest economy who expect inflation to continue to rise and growth to continue to slow.

Unpacking a litany of problems facing the economy, bank governor Gill Marcus acknowledged the economic outlook had “deteriorated” but said current level of stimulus was “appropriate.” “The domestic growth outlook has deteriorated, while the upside risks to inflation have increased,” Marcus said.

The bank cut its growth outlook for 2013 dramatically from 3.4 per cent to 2.9 per cent, while predicting that inflation would peak at 5.7 per cent in early 2013.

That is lodged at the very upper end of the bank’s three to six-per cent target for consumer price increases. Despite the bleak outlook, the central bank as expected kept interest rates unchanged.

“The bank finds itself stuck in a deepening stagflation bind,” said Bruce Donald, an economist with Standard Bank.

“We expect that, when the bank believes that it has the room to ease, it will cut” its benchmark lending rate, said Donald.

Many predict that the reserve bank could make a move to cut rates early in 2013, but it is far from clear when the economic situation will offer room to do so.

Consumer prices have been pushed higher by a weaker rand and higher food prices, which in October increased at a faster rate than at any time since 1994.

News: The Daily Sun/Bangladesh/24-Nov-12