The South African Reserve Bank (SARB) is widely expected to keep its key repo rate unchanged at 5% at the meeting of its monetary policy committee (MPC) on Thursday (July 18), Sunday Times reported.

The main factors that the committee will deal with are the subdued economic growth and expectations of high inflation.

South Africa’s Q1 GDP growth eased to 0.9% q/q, the slowest quarterly expansion since the country rebounded from a recession in Q3 2009, mainly due to a sharp 7.9% q/q contraction of the manufacturing sector.

Although recent manufacturing and mining data suggest the Q2 GDP figure should improve, SARB governor Gill Marcus hinted last month that the bank would cut its 2013 growth forecast at the MPC’s meeting from 2.4% expected in May. The International Monetary Fund (IMF) slashed its 2013 economic growth forecast for South Africa last week to 2% from 2.8%.

The country’s annual inflation eased to 5.6% in May from 5.9% in April, according to the latest available data. But higher oil prices and a continuing depreciation of the rand pose upside risks to inflation. According to Ilke van Zyl, economist at Vunani Securities, these factors could push up inflation to 6.3% in August, above the central bank’s 3%-6% target range.

According to Thabi Leoka, head of macro-economic research at Standard Bank, SARB would most likely keep rates on hold, given the two big factors working against each other —  slow growth and higher inflation expectations.

Van Zyl projects rates to stay unchanged until Q4 2014, and then go up by 50bps. Another analyst, Mohammed Nalla, head of strategic research at Nedbank Capital, expects the first rate increase to come in Q2 or Q3 2014 unless inflation accelerated considerably above the central bank’s target.

In July 2012, SARB cut by 50 basis points the repo rate, which had been staying flat at 5.5% since November 2010, in a bid to counteract downside risks posed to the domestic economy from the weakening global environment, while inflation was seen within the target for an extended period.