Rand, wages pose inflation risk – SARB
A weaker rand and above-inflation wage increases could add to price pressures in the South African economy, the Reserve Bank said in its annual economic report on Tuesday.
The rand has lost 16% against the dollar this year, helping nudge consumer inflation towards the top end of a 3% to 6% inflation target.
This forced the central bank to keep rates unchanged at last week's bi-monthly policy meeting despite lacklustre economic growth, which the bank is forecasting at just 2% this year.
The weaker rand, high administered-price inflation and wage increases in excess of inflation were the main factors that could add to domestic inflationary pressure, the bank said in the report, which is mainly backward-looking.
The manufacturing sector, which accounts for 15% of GDP, remained susceptible to renewed weakness in the global economy, particularly in the key export market of Europe, it added.
An 8% manufacturing contraction in the first quarter slowed overall growth to an annualised 0.9% from 2.1% in the previous three months, leading to the bank trimming its 2013 growth forecasts.
However, it said the softer rand could provide a boost for manufacturing exporters.
The current account deficit was expected to narrow marginally in the first half of 2013 after a deterioration in 2011 and 2012, the central bank added.
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