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South African Central Bank Leaves Key Interest Rate at 30-Year Low of 5.5%

South Africa’s central bank left its benchmark interest rate unchanged, after lowering it three times in 2010 to a 30-year low, on signs the recovery in consumer spending is strengthening, while food and oil costs surge.

The repurchase rate was left at 5.5 percent, Governor Gill Marcus said in a televised speech from the capital, Pretoria, today. That was in line with the forecasts of 21 of 22 economists surveyed by Bloomberg.

Consumer spending, which accounts for two-thirds of expenditure in the economy, surged an annual 7.8 percent in November, spurred by low interest rates and a rally in the rand, which has helped keep inflation inside the central bank’s 3 percent to 6 percent target range. Rising oil and food costs are now threatening to push inflation back up, closing the door on further rate cuts.

“There is a need for caution,” Colen Garrow, an economist at Brait SA in Johannesburg, said before today’s decision. “The rand is helping the inflation situation, but there’s no certainty that will continue.”

The rand weakened below 7 to the dollar today for the first time in more than a month, paring its 17 percent rally against the U.S. currency in the final six months of 2010. Inflation was 3.5 percent in December.

Even before recent declines, the gains in the rand had failed to offset a 25 percent surge in the crude oil price in New York in the second half of 2010, prompting the government to increase the price of gasoline every month since October. The price was last raised by 3.3 percent on Jan. 5.

Food Costs

Food prices are also surging. The price of white corn, a staple food in South Africa, jumped 23 percent on the South African Futures Exchange in the past six months, while wheat has climbed 21 percent in the same period.

Even so, the Reserve Bank may not be in a hurry to raise interest rates as the economic recovery fails to cut the unemployment rate.

Growth slowed to an annualized 2.6 percent in the third quarter from 2.8 percent in the previous three months, the statistics office said on Nov. 23. The economy shed 86,000 jobs in the same period, leaving the unemployment rate little changed at 25.3 percent, the highest of 61 countries tracked by Bloomberg.

To contact the reporter on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net; Franz Wild in Johannesburg at fwild@bloomberg.net.

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net.

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