South Africa Holds Repo Rate At 5.5 Percent

JOHANNESBURG (Reuters) – South Africa's Reserve Bank kept interest rates unchanged as expected at 5.5 percent on Thursday, saying that even though the bank remained in a monetary tightening cycle it had to consider downside risks to economic growth.

"The MPC continues to face the difficult dilemma of dealing with upside risks to inflation and a deteriorating domestic economic growth outlook," Reserve BankGovernor Gill Marcus said.

The majority of economists surveyed by Reuters had expected Marcus to keep rates unchanged after a surprise 50 basis point increase in January to stave off bubbling inflation pressures.

The bank slashed its 2014 growth forecast to 2.1 percent from 2.6 percent forecast in March, adding that growth in the first three months of this year was expected to be the lowest quarterly expansion since a 2009 recession.

Marcus said rand was also likely to remain vulnerable to changing perceptions about U.S. monetary policy – a factor that helped drive the currency to 5-year lows in January. The rand has recovered substantially from those levels, hitting a year-high last week.

Inflation hit 6.1 percent in April and the bank said it expected it to remain outside its 3-6 percent target band until the second quarter of 2015.

"The committee continues to hold the view that we are in a rising interest rate cycle and interest rates will have to be normalised in due course. We embarked on this process with our first move in January 2014," Marcus said.

The rand firmed marginally after the decision and was trading at 10.3455 against the dollar, 0.2 percent stronger on the day, at 135