South African inflation slowed for the first time in five months in May, while the current account deficit unexpectedly shrank, improving the outlook for Africa’s largest economy.

The inflation rate fell to 5.6% in May from 5.9% in April, the statistics office said last week, lower than all the 19 esti- mates from economists surveyed by Bloomberg.

The gap on the current account, the widest measure of trade in goods and services, narrowed to 5.8% of gross domestic product in the first quarter from 6.5% in the previous three months, the South African Reserve Bank (SARB) said in its Quarterly Bulletin released in Pretoria.

The better-than-forecast data eases pressure on the central bank to raise interest rates to contain inflation and attract foreign capital.

“There is consequently no need for any interest rate hikes,” Annabel Bishop, a Johannesburg-based economist at Investec said in an emailed note to clients. Today’s data “lowers the trajectory for consumer price inflation for the remainder of 2013 and the start point for 2014”.

The central bank has kept the bench- mark lending rate at 5% since July last year. The combination of high inflation and low economic growth left the central bank “limited room for manoeuvre”, SARB governor Gill Marcus said on June 6.

Inflation eased last month as petrol prices in Gauteng, the nation’s commercial hub, fell on May 1 by 5.5%, the biggest drop since July, after oil declined.

Inflation is forecast to average 5.8% this year, down from a previous estimate of 5.9%, and exceed the bank’s 3% to 6% target in the third quarter, Marcus said on May 23.

“We believe that rates will remain at current levels for the rest of this year,” Nedbank Group, the country’s fourth- largest bank said in an emailed note to clients. “The MPC will need to strike a balance between high inflation and still poor economic growth outcomes.”

While the rand’s 15% slump against the dollar this year has stoked inflationary pressures, it has also increased the competitiveness of the country’s exports.

“The export earnings of South African producers continued to benefit from the lower exchange value of the rand, which extended into the first quarter,” the central bank said in today’s report. “South Africa’s terms of trade improved somewhat in the first quarter of 2013 as export commodity prices held up well relative to the prices of imported goods and services.”

The current-account gap was narrower than the median estimate of a 6.9% short- fall and all 15 estimates in a Bloomberg survey.

Increased exports will help offset the effect of a series of strikes that the National Treasury says shaved about 0.5 percentage points off gross domestic product last year and a further 0.3 percentage points this year.

Sluggish growth is making it harder for Finance Minister Pravin Gordhan to rein in the fiscal deficit, a concern raised by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings when downgrading South Africa, starting in September.

The economy expanded an annualised 0.9% in the first quarter, the slowest pace since a 2009 recession, and less than the 7% rate the government says it needs yearly through 2020 to cut the jobless rate to 14% from 25%.

South Africa relies mainly on foreign investment in stocks and bonds to fund the current-account deficit, inflows that have fluctuated this year as investors’ risk perceptions increased.

The gap was adequately financed by foreign inflows last quarter as foreign direct investment rebounded, the central bank said.

Investment in stocks and bonds by nonresidents slowed to R1.4-billion, compared with R12.5-billion in the final three months of the year, the central bank said. South Africa recorded R12.9-billion in foreign direct investment, compared with an outflow of R1.4 billion in the previous three months.