Johannesburg - Reserve Bank governor Gill Marcus on Thursday left the repo rate at a historic low of 5.5% as she warned of a deteriorating inflation outlook, SA's fragile economic recovery and potential fallout from the eurozone debt crisis.
"The domestic economic recovery has continued, but in a hesitant manner. The strong performance of the economy in the first quarter of the year is unlikely to have been repeated in the second quarter, and growth prospects will also be dependent on global developments," she said.
Domestic inflation has been increasing in line with expectations, driven mainly by cost push pressures, but more broad-based pricing pressures are beginning to emerge, she warned.
All 21 economists polled by Reuters last week saw the rate holding steady, although 12 of these expected an increase before the end of the year.
The bank slashed rates by a cumulative 650 basis points over a two-year period ending in November 2010, but left them unchanged at its first three policy meetings this year as inflation rose.
Inflation is expected to marginally breach the upper end of the target range in the final quarter of 2011, and to average 6.3% in the first quarter of 2012.
Marcus said the Reserve Bank would remain vigilant in monitoring the risks to inflation, as she again warned of the effects of above-inflation wage increases.
“Wage settlement rates have been declining... However, given that most of the wage negotiations take place in the second half of the year and that some of the recent high-profile settlements appear to have reversed the moderating trend, this positive outcome could change.
“Should these higher trends set a precedent for other wage settlements, this could represent a significant upside risk to the inflation outlook. The high trends in executive remuneration increases are also cause for concern,” she said.
The risks relating to the eurozone crisis have intensified, she added.
"The global systemic risks posed by any failure to overcome the sovereign debt crisis are enormous, and are exacerbated by the potential failure to resolve the debt ceiling crisis in the United States. These events are taking place against the backdrop of a slowdown in growth in many of the advanced economies."