South Africa's Central Bank Governor Gill Marcus said on Monday there was little room to cut interest rates and that the bank had to be mindful of higher inflation despite the rand's volatility on foreign exchange markets.
The bank has left interest rates unchanged at 5.5 percent for 16 months after cutting them by 650 basis points over a two-year loosening cycle that ended in November 2010.
In a speech at a business briefing in Zurich, Marcus said the domestic inflation trend suggested there was little scope for further accommodative monetary policy, if all other factors remained the same.
"The expected inflation trajectory suggests that there is limited, if any, room for further monetary accommodation at this stage," she said, adding that significant changes to factors such as the domestic growth outlook and the global economy could alter the situation.
The bank expects inflation, at 6 percent in March, to return to within its 3-6 percent target range by the end of the year "on a sustainable basis".
The next policy rate decision is expected on May 24.
RAND VOLATILITY CHALLENGE
Capital inflows have caused increased volatility in emerging market currencies such as the rand as investors have chased higher yields.
Marcus said the inflows were useful to emerging markets but that the volatility they caused on foreign exchange markets made them difficult to manage.
"It is the extreme volatility, brought about by the excessive capital flows, that creates problems for macroeconomic management," she said.
Reiterating that the bank does not target a level of the rand exchange rate, Marcus said the rand had remained volatile despite the country having a bigger stock of foreign exchange reserves which are seen as a bulwark against volatility.
South Africa's economic recovery "looks to be sustained" but was dependent to a large extent on global developments, she added.