South African Inflation Accelerates to Top of Bank’s Target

South Africa’s inflation rate rose to 6 percent in March, the top of the central bank’s target.

Inflation accelerated from 5.9 percent in February, the Pretoria-based statistics office said. The median estimate of 21 economists surveyed by Bloomberg was 5.9 percent. Prices rose 1.3 percent in the month.

Inflation close to the upper end of the Reserve Bank’s 3 percent to 6 percent target band prompted policy makers to raise borrowing costs for the first time in more than five years in January. While the rand has gained 5.3 percent against the dollar since then, allowing the bank to keep the benchmark interest rate at 5.5 percent last month, Governor Gill Marcus said on April 8 the “accommodative” policy stance can’t be maintained indefinitely.

“The inflation outlook remains poor in the short term as the rand is still vulnerable despite its recent strengthening,” Busisiwe Radebe and Dennis Dykes, economists at Nedbank Group Ltd. in Johannesburg, said in an e-mailed note to clients. “Given the need to balance growth prospects with higher inflation, we anticipate that rates will rise by 25 basis points at two of the next four meetings.”

Inflation will probably average 6.3 percent this year and peak at 6.6 percent in the fourth quarter, Marcus said on March 27. The bank forecasts inflation will breach the upper end of its target band in the 12 months through the second quarter of 2015.

Rand Weakens

Price pressures may be spreading in the economy, with the core inflation rate, which excludes food, non-alcoholic beverages, fuel and energy, rising to 5.5 percent in March from 5.3 percent in the previous month.

The rand declined for a second day, falling 0.4 percent to 10.5919 rand per dollar by 12:56 p.m. in Johannesburg. The yield on the 2026 bond rose 13 basis points, or 0.13 percentage point, to 8.51 percent. One-year interest rate swaps, used to lock in borrowing costs, rose four basis points to 6.40 percent.

“The rise in inflation will most likely impact growth in the first quarter, which will be pretty weak,” Elize Kruger, an economist at Johannesburg-based KADD Capital, said by phone. “The central bank, being data dependent, will consider both at next month’s MPC meeting” and may postpone any rate increase to the second half of the year, she said.

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