October 29, 2018 / 4:34 PM / 23 days ago

UPDATE 1-South African central bank readies ground for higher rates

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PRETORIA, Oct 29 (Reuters) - South Africa’s central bank may have no choice but to hike interest rates as inflation remains “uncomfortably” near the upper end of its target range and economic growth is lagging, it said on Monday.

But while the South African Reserve Bank (SARB) was considering raising rates, they would not rise as steeply as in some other emerging markets forced to respond to deep currency selloffs.

“Although we have talked about raising interest rates, we are not contemplating emergency hikes of hundreds of basis points,” the bank’s Governor Lesetja Kganyago said in its biannual policy review.

Brazil, Russia, Argentina and Turkey have all raised rates to stem selloffs that dragged their currencies to record lows. Since March the rand has fallen around 20 percent against the dollar.

The SARB cut rates from 6.75 percent to 6.5 percent in March and has kept them unchanged at three policy meetings since, but each time striking an increasingly hawkish tone.

Its forecasting model indicates higher lending rates in the next two years, rising to 7.7 percent by the end of 2020 to stem inflation.

The bank sees annual consumer inflation at 5.6 percent next year and 5.4 percent in 2020. Inflation was flat at 4.9 percent in September.

The bank also said economic recovery from a recession in the first half of the year would be slower than expected.

Reporting by Mfuneko Toyana Editing by Ed Stoddard and John Stonestreet

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