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Sarb: Inflation outlook worsening

Johannesburg - The inflation outlook continues to deteriorate and the South African Reserve Bank (Sarb) stands ready to take the necessary steps to curb price pressures if inflation remains sticky, the bank's Deputy Governor Francois Groepe said on Monday.

The Reserve Bank, faced with rising prices against slowing growth in Africa's largest economy, kept interest rates unchanged at four-decade lows of 5% last month.

"If, however, inflation remains sticky and evidence emerges of second round effects, the Bank would take appropriate measures in keeping with our mandate," he said in a speech posted on the bank's website.

Groepe reiterated that the Bank's primary mandate was price stability. It targets inflation of 3% to 6%.

The outlook for inflation has worsened through the year with the Sarb now expecting the consumer price index to average 5.9% in 2013 after a 6.3% breach in the third quarter, higher than forecast at the start of the year.

Groepe also said that the had not made enough progress to ironing out structural problems in the economy such as the rigidity of the labour market, infrastructure bottlenecks and the rand's volatility.

"Monetary policy and changes in monetary policy in advanced economies is causing excessive volatility in the rand exchange rate," Groepe said.

Investors are concerned about the financing of the current account as the United States looks to withdraw economic stimulus.

"The anticipated reversal of quantitative easing has contributed to a slowdown in capital inflows and a depreciation in the exchange rate, which is likely to add further upward pressure on inflation due to a pass through effect," Groepe said.

The rand has lost 16% against the dollar this year, including a 3% drop since the Federal Reserve announced it was looking to taper its bond-buying programme.

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