Nasreen Seria

Bloomberg

THE Reserve Bank will probably keep the benchmark interest rate at a 25-year low this year as inflation stays within its target range for a third year, a survey of economists shows.

The CPIX inflation rate, which excludes mortgages, would average 4,4% this year, according to the median forecast of six economists surveyed. That was within the targeted 3%-6% range.

The Bank would leave its repurchase rate at 7% through the year, according to five of the six economists.

Seven reductions in interest rates in the 22 months through April fuelled consumer and business spending. South African economic growth reached about 5% last year, the fastest pace in 21 years, Finance Minister Trevor Manuel said last month.

Inflation remained subdued, however, touching a five-month low in November.

"I’m not too concerned about inflation," said London-based ABN AMRO bank economist Debbie Orgill. "The Reserve Bank has seen the benefits of low interest rates and will try to leave them unchanged."

SA is targeting economic growth of at least 4,5% over the next five years and 6% between 2010 and 2014, in order to meet government’s goals of reducing unemployment and poverty by half by 2014.

Bank governor Tito Mboweni signalled late last year that interest rates may have to rise as a jump in oil prices threatened to stoke inflation.

Since then, crude has dropped 3,3%, while the rand has gained 5,3%. That helped lower inflation to 3,7% in November.

"The overall effect of the international oil price increases on inflation and output has been far more muted than expected," Mboweni said last month, announcing that he would keep the benchmark rate unchanged.

Inflation would probably accelerate to "somewhat below" the Bank’s previous forecast of 5,8%, he said.

A stable rand would help to keep inflation within the central bank’s range, said Magan Mistry, an economist at Nedbank. The rand would probably average R6,44 to the dollar this year, little changed from last year’s forecast.

"We’re looking at more stability in the rand, driven by commodity prices and positive sentiment from foreign investors."

The rand lost 10,6% against the dollar last year, dropping to R6,333 to the greenack, after more than doubling in value in the three years through 2004.

The country’s three-year housing boom and a spending spree on new cars have eased, reducing pressure on the Bank to raise interest rates for the first time since September 2002.

Annual house price inflation slowed to 14,7% in November, the lowest since 2002.

Household spending growth slowed to an annual 6% in the third quarter, from 6,5% in the previous three months.

"Growth in disposable income is slowing and debt levels are at record highs," said Jac Laubscher, group economist at Sanlam.

"We’ll see some slowdown in economic growth this year."

SA’s economy would probably expand 4,3% this year, said the economists surveyed.