The prime interest rate is to remain steady at 11,5% after the SA Reserve Bank (SARB) opted on Thursday to keep the repo rate, at which it lends money to commercial banks, at 8%.

The decision of the bank's Monetary Policy Committee was based on expectations of consumer inflation remaining within the target range of three to six percent for the next two years, SARB governor Tito Mboweni said in Pretoria.

The economy was expected to pick up momentum at the same time.

"The inflation outlook over the coming months as well as over the longer term continues to be favourable," the governor told reporters.

Year-on-year consumer inflation minus mortgage bond costs, CPIX, rose from four percent in December to 4,2% in January and 4,8% in February.

If energy and food prices were excluded, the figure fluctuated around 5,7% in the four months to February, Mboweni said.

This was due to high increases in the prices of services -- an average of about 8% for January and February.

This was mainly evident in rises in rent, medical costs, education fees and domestic workers' wages.

Mboweni said recent producer price figures should continue to restrain consumer inflation in the short term. The all-goods production price index has been generally declining from month to month since the second half of last year.

This could be ascribed mainly to the recovery in the external value of the rand, with the prices of imported goods dropping sharply.

"Production prices should exert hardly any pressure on consumer prices over the short term. The expected developments in the CPIX over the coming months will be mainly related to exogenous developments such as changes in energy prices, indirect taxes and food."

Other factors considered included an acceleration in global economic growth, prospects of low world inflation for the year, and the rise in domestic demand still well below the growth potential of the South African economy.

Recent wide-spread rains have improved the agricultural outlook, while the government's continued fiscal discipline should also contribute to price stability, the governor said.

While international oil prices have increased recently, they should not be a major threat in the long term.

Mboweni named a number of uncertainties that could change the inflation outlook, including high labour costs, the recent growth in money supply and a possible widening of the current account deficit.

"The process of adjustment of global economic imbalances and the risk of continuing geopolitical tensions could be a source of increased international instability, which could impede the present recovery in the world economy and pose threats to low inflation and growth in emerging market economies."

Mboweni said the momentum of the local economy could be assisted greatly by appropriate sustainable supply-side measures. He expressed concern that domestic production seemed unable to keep up with demand.

"Our suspicion is that there are a lot of structural impediments in the economy which make it very slow for the domestic production side to react to increased demand," he said.

The focus should be on refurbishing infrastructure, especially railways and ports.

"We also need to increase competition in the economy, either through the restructuring of state assets, private-public sector partnerships across the economy, maybe a greater focus as well on agriculture in a manner we haven't seen so far."

Increasing support for emerging farmers was of critical importance, Mboweni said.

Also vital was boosting production technology - Sapa.