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South Africa Inflation Unchanged at 5.9% as Rand Weakens

May 22 (Bloomberg) -- South Africa’s inflation rate rose more than estimated in April as a decline in the value of the rand added to the cost of imports, reducing the chances of a cut in interest rates.

Inflation was unchanged 5.9 percent from the previous month, Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 19 economists was 5.7 percent. Consumer prices increased 0.4 percent in the month.

“Even though the economy is still weak and there are the strikes, the central bank will wait and see” before lowering its key interest rate, said Stanislava Pravdova, an economist at Copenhagen-based Danske Bank A/S, who correctly forecast the inflation data. “Right now it’s a no-go for them to cut.”

The rand’s more than 10 percent decline against the dollar this year may add to the cost of imports, including oil, leaving policy makers less room to stimulate an economy hurt by slowing demand from Europe for its manufactured goods, sluggish mining output and the risk on more labor unrest. The South African Reserve Bank will keep the repurchase rate at 5 percent tomorrow, according to 18 of 19 economists surveyed by Bloomberg.

Forward-rate agreements, used to speculate on interest rates, starting next February climbed as much as eight basis points, or 0.08 percentage point, today to 4.97 percent, the highest level in a month.

Inflation “will certainly break the upper end of the target over the next few months,” Pravdova said. “This is something the central bank needs to remember.”

The rand gained 0.5 percent to 9.4966 per dollar by 11:20 a.m. in Johannesburg, paring the drop this year to 10.8 percent, the second-worst performance of the 16 major currencies monitored by Bloomberg after the Japanese yen.

The bank’s monetary policy committee said at its last meeting two months ago that inflation will probably exceed 6 percent, the top of its target range, in the third quarter.

To contact the reporters on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net; Franz Wild in Johannesburg at fwild@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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