South Africa’s central bank may lower its 2013 economic growth forecast at the next meeting of its monetary policy council (MPC), given the negative trend in recent economic developments, the bank said in its June 2013 Monetary Policy Review (MPR). The central bank’s 2013 GDP growth forecast, which was revised marginally upwards at the March 2013 MPC meeting, was again lowered in May to 2.4% with downside risks. “With the latest data releases, this may need to be revised down at the next meeting of the MPC,” the Reserve Bank of South Africa said. It explained that export demand and commodity prices remained weak, while widespread labour market instability undermined confidence, investment and output. Household spending also remained muted, constrained by slow growth in disposable income, rising inflation and subdued employment creation.

The reserve bank noted that the weaker foreign demand coupled with low terms of trade and sustained domestic spending led to a further widening of the current account gap to over 6% of GDP, contributing to the strong depreciation of the rand, which in turn boosted inflationary pressures. It added that despite stronger inflation momentum over the short term, inflation expectations remain anchored around the upper end of its 3%-6% inflation target range. Headline inflation leveled off at 5.9% from February through to April, with core inflation also remaining below 6%.

The central bank pointed out that its monetary policy stance remains accommodative, taking into account a sustained negative output gap and inflation driven primarily by global factors, especially exchange rate movements.