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Pretoria - The deputy governor of the South African Reserve Bank, Daniel Mminele, says inflation is "uncomfortably high" and could increase further.
He said inflation was above its 3% to 6% target band and could rise further in a deteriorating domestic economic environment.
"Monetary policy in South Africa is currently facing an increasingly challenging situation, as the domestic economic growth outlook has deteriorated markedly even as inflation broke out of its target range," Mminele told financial market professionals in Pretoria.
Inflation rose above the central bank's and market expectations in May when it came in at 6.6%.
Mminele said domestic demand has slowed and the current tightening cycle, aimed at fighting off inflation, "need not match the speed and magnitude of earlier cycles".
Soft rand causes price hikes
The last tightening cycle came between mid-2006 and mid-2008 when rates went from 7% to 12%.
A weakening rand has been a major cause of higher prices, hitting a string of five-year lows at the start of the year when the bank hiked interest rates by 50 basis points to 5.5%.
The currency has since recovered and was trading at R10.61 to the dollar on Tuesday, partly because Amcu and platinum producers came to a resolution to end a crippling five-month platinum sector strike.
However, Mminele warned that South Africa's bond market, supported by carry trade activity in May, could be vulnerable to risks of a fresh debt sell-off globally, while domestic stocks finally appear increasingly expensive.
He said the market should not expect policy makers to keep commenting directly on short-run market movements, as this could add to volatility.
He said inflation was above its 3% to 6% target band and could rise further in a deteriorating domestic economic environment.
"Monetary policy in South Africa is currently facing an increasingly challenging situation, as the domestic economic growth outlook has deteriorated markedly even as inflation broke out of its target range," Mminele told financial market professionals in Pretoria.
Inflation rose above the central bank's and market expectations in May when it came in at 6.6%.
Mminele said domestic demand has slowed and the current tightening cycle, aimed at fighting off inflation, "need not match the speed and magnitude of earlier cycles".
Soft rand causes price hikes
The last tightening cycle came between mid-2006 and mid-2008 when rates went from 7% to 12%.
A weakening rand has been a major cause of higher prices, hitting a string of five-year lows at the start of the year when the bank hiked interest rates by 50 basis points to 5.5%.
The currency has since recovered and was trading at R10.61 to the dollar on Tuesday, partly because Amcu and platinum producers came to a resolution to end a crippling five-month platinum sector strike.
However, Mminele warned that South Africa's bond market, supported by carry trade activity in May, could be vulnerable to risks of a fresh debt sell-off globally, while domestic stocks finally appear increasingly expensive.
He said the market should not expect policy makers to keep commenting directly on short-run market movements, as this could add to volatility.
