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Reserve Bank sees inflation risk

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Johannesburg - Wage strikes in South Africa, credit rating downgrades and a widening current account deficit do not bode well for inflation, Reserve Bank Deputy Governor Daniel Mminele said on Wednesday.

The central bank left its main interest rate unchanged at 5.0 percent last week, warning about the impact of above-inflation wage settlements aimed at calming the worst mining unrest since apartheid.

“Alongside a less favourable outlook for inflation, the domestic growth outlook has deteriorated, not only due to developments in the euro zone and US, but intensified further by labour market instability,” Mminele said in the text of a speech posted on the bank's website.

The strikes, which hit output in the world's biggest platinum producer and triggered rating downgrades from Moody's and S&P, were the main reason for third-quarter GDP growth slowing to 1.2 percent from 3.4 percent in Q2.

“The negative impacts of the strike action on growth have not fully fed through and we are likely to see further weakness in the quarter ahead,” Mminele said in the speech prepared for a business dinner.

“Both business and consumer confidence are far from robust and it is unlikely that the demand side of the economy will provide much support.”

Government bond yields edged higher on Wednesday after Reserve Bank Governor Gill Marcus told a metal workers' conference that lower interest rates were “not appropriate” for now. - Reuters

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