Bar for interest rate cuts high - central bank

The Reserve Bank kept interest rates unchanged at 7 percent for a third consecutive time last week, and hinted at end of the tightening cycle.

A shopkeeper counts out change above her cash box at her shop in Hillcrest, west of Durban, South Africa, January 11, 2016. REUTERS/Rogan Ward

South Africa's central bank has set a high bar for interest rate cuts as it looks to contain inflation despite weak economic growth, deputy governor Daniel Mminele said on Tuesday.

The Bank, which has an inflation target of between 3 and 6 percent, said prices should rise by an average 6.4 percent this year, down from an earlier forecast of 6.6 percent.

Mminele said there was still a risk of inflation increasing if unions negotiated higher wages and a severe drought continued to push up food prices.

"Some of the factors which have had a favourable impact on the inflation outlook could reverse quickly, in which case the view that we are close to the end of the tightening cycle would need to be reassessed," Mminele said in a speech.

"The MPC (monetary policy committee) has also indicated that the bar to interest rate cuts is high."

South Africa's headline consumer inflation now stands at 5.9 percent.

The bank has hiked the benchmark repo rate by a cumulative 200 basis points since the start of 2014 to rein in rising inflation, with the last hike implemented in March.

Mminele said inflation could surprise on the downside if recent rand gains were sustained and grain prices dropped.

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