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South Africa's targeted inflation is not expected back in the three to six percent band before the end of 2009, and there are significant upside risks to this forecast, Reserve Bank governor Tito Mboweni said yesterday.
The Bank has raised its repo rate by 450 basis points to 11,5percent since June 2006 to try to tame inflation, but price pressures continue to build, driven initially by food and fuel costs.
The key CPIX (consumer inflation less mortgage costs) gauge accelerated to a five-and-a-half year high of 10,4percent year-on-year in April, raising chances of more hikes.
Mboweni said that food and fuel costs were the main contributors to inflation but pressures had become more generalised in recent months.
"Inflation is expected to persist above the inflation target of three to six percent, and is not expected to return to within the range before the end of 2009," he said.
"Unfortunately, we see the risks to this forecast to be significantly on the upside."
Exporters are likely to continue to face an environment of rising costs and high interest rates in the short-term.
"We remain committed, however, to bringing inflation down to within the target range in the medium-term," Mboweni said.
Recent hawkish comments from Mboweni have almost sealed the case for a more aggressive than usual hike in rates next week, with the market looking for a 100 basis point jump - double the previous increases. - Reuters