* CPI forecasts up on cost-push pressures
* Bonds weaken, MPC did not discuss rate cut
* Bank cuts growth forecasts
* Consensus is that next rate move will be up
(Changes dateline, adds quotes, analysis)
By Phumza Macanda
JOHANNESBURG, Jan 19 South Africa's
Reserve Bank left its repo rate unchanged at 5.5 percent on
Thursday as expected, with concerns about a slowing economy
off-setting the pressures from inflation, which is likely to
stay outside its target band for longer than previously
At its first policy meeting of 2012, the bank raised its
inflation forecast, saying it expected inflation to be outside
its 3-6 percent target range throughout 2012, with the recent
depreciation of the rand the main reason.
Government bonds weakened after that, with investors worried
inflation would eat into their returns. Governor Gill Marcus
said the bank did not discuss reducing interest rates, a hint
that monetary loosening might off that table.
"It seemed as though there was a little bit more of a
hawkish undertone to the message. Obviously, the Reserve Bank is
a little bit uncomfortable with the inflation being above the
target zone," said Dennis Dykes, chief economist at Nedbank.
The Reserve Bank said inflation would peak at 6.6 percent in
the second quarter of this year, only returning to the target
range in the first quarter of 2013, it added.
Previously, the MPC saw inflation peaking at 6.3 percent in
the first quarter and returning to the target late this year.
Inflation was being driven mainly by cost-push pressures
such as food, fuel and administered prices. Marcus said raising
interest rates "at this stage would not be appropriate" given
the lack of demand pressures.
The Reserve Bank has left interest rates at 30-year lows
since last year, after reducing them by a cumulative 650 basis
points in the two years to November 2010.
The consensus is that the next move in rates is going to be
upwards but with growth being sluggish the question is when the
central bank can do so without harming it.
The rand briefly firmed after the MPC's decision
but later retreated. Rates on the money market were fairly
steady, after dipping a bit.
"I would describe this as a fairly neutral speech with big
risks for growth and inflation. But we don't expect a rate
movement anytime soon especially if the rand continues to
recover," said George Glynos, managing director at ETM.
South Africa lost more than a million jobs during the
recession and Marcus said labour market prospects "remain
With such concerns, the bank will likely delay rate
increases until the economic outlook has improved.
Local data has suggested consumers are still hesitant to
spend freely, while the key manufacturing and mining sector
On that, the bank cut its 2012 growth forecast to 2.8
percent from 3.2 percent, a fraction of the 7 percent the
government has said is needed to create jobs.
Marcus said the MPC maintained a preference for a stable
interest rate environment but was "ready to act appropriately to
ensure the attainment of the inflation target over the medium
term while being supportive of the domestic economy".
(Additional Reporting by Xola Potelwa and Johannesburg
newsroom,; Editing by xx)