Issuing its bi-annual policy review on May 15, the bank sounded a cautious note on being able to keep inflation within the 3 to 6% range it had predicted for the year, a situation that could prompt a further increase in interest rates. In March, the annualised inflation rate jumped to 5.5%, a steep rise on the 4.9% of the previous month.
"In the event of significant adverse developments in the main determinants of inflation or an insufficient response to the previous monetary tightening, the target could be threatened," the bank stated.
"Monetary policy remains strongly focused on keeping inflation within the target range, and in the coming months the Monetary Policy Committee (MPC) will be assessing the inflation outlook in the light of unfolding developments."
The MPC is due to meet in the first week of June, having left interest rates unchanged at its April meeting. The bank increased lending rates by 200 points over the second half of last year, raising its repo rate to 9%.
In its report, the bank cited a resumption in oil price increases after the recent lull as one of the causes of the inflationary pressure, saying it resulted in a "deterioration in the inflation outlook".
Other concerns raised in the report were the levels of credit extensions provided by banks to the private sector, which the bank said were continuing to rise at an "uncomfortably high" rate, and the strong growth in household consumption expenditure. Currently, household debt has hit a record 73.8% of disposable income, a level the bank says is excessive. On a more positive note, there has been a slowdown in the increase in demand for private sector credit, which eased to 24.2% year-on-year in March, down the 26.12% of the month before and well off the high 28.6% in October 2006.
However, while having flagged its concerns, the SARB was at pains to stress that no interest rate hike was contemplated at the moment. While the bank said it was keeping an eye on the rate at which the economy was expanding, the level of growth was as yet not a major factor in fuelling inflation, according to Brian Khan, an economist at SARB.
"We believe we are more or less at levels that are not posing an excessive threat to the inflation outlook," Khan told a forum on monetary policy held in Pretoria on May 15. "We wouldn't like to slam the brakes on the economy if we are not in a position where there are clear signs of inflation pressure coming through from that source."
The warnings in the SARB's review of inflation and interest rates only served to reinforce those made by the bank's governor, Tito Mboweni, on May 4. Both the rising costs of oil, and a strengthening rand that was helping fuel a spree in buying of imports while at the same time hindering overseas sales, could bring about a further tightening of monetary policy, he said.
"While recent surveys indicate that inflation expectations remain relatively well anchored at levels consistent with the inflation target band in South Africa, we cannot afford to become complacent," Mboweni said.
However, the SARB's warnings over high consumer spending, and the four rounds of rate rises between June and December last year, appear to have gone unnoticed. Figures released by Statistics South Africa on May 16 show annualised retail sales increasing by 10.1% in March. This is well up on the 8% year-on-year increase recorded in February, with the March figures pushing the Q1 rate of retail sales growth to 9.3% over the same three months in 2006.
Last year's interest rate increases may have had some impact though, with a slight fall in new car sales over the past three months and an easing in the levels of house price growth, which slowed to an annualised 7.4% in April, down from the 8.4% of the month before.
Though the SARB has made it clear it does not want to hinder growth by introducing another round of interest rate increases it has made it equally apparent that it will intervene if it sees the need. A few more bad figures like those issued on May 16 could see that need arise.