South Africa central bank slashes growth forecast, holds rates

South Africa's Reserve Bank slashed its growth forecast for this year and kept rates on hold Tuesday, warning a prolonged mining strike could have a further "potentially devastating" impact on the economy. Painting a bleak picture of the state of Africa's most developed economy, Gill Marcus said growth was expected to slow to 2.1 percent this year, versus a previous forecast of 2.6 percent. "Despite a more favourable global growth environment, the domestic economic growth outlook has deteriorated markedly," said Marcus. She zeroed in on a strike that haskept an estimated 80,000 platinum miners above ground for the last four months, refusing to return to work until they get a significant pay hike. "There is still no end in sight to the rotracted strike in the platinum sector, and the economic and social costs are escalating and are potentially devastating," said Marcus. She also expressed concern that any bumper wage deal in the sector could set the tone for other wage negotiations -- fuelling inflation that is already above the six percent upper edge of the bank's target rate. At an annualised rate consumer prices rose 6.1 percent in April thanks to a rise in the cost of basic food items, housing and transport. That poses a tough challenge for the bank. It needs to curb inflation -- which has hit the poor disproportionately hard -- but raising interest rates risks hampering growth. With one in four South African workers without a job and millions more giving up the hunt, the country sees frequent social unrest. Marcus said members of the monetary policy committee had decided to keep rates on hold for now, with five members voting in favour of a freeze and two voting for a rise. "Monetary policy faces an increasingly challenging scenario," said Marcus. High inflation and a weak rand had forced the bank to raise rates by halfa percentage point in January to 5.5 percent. The decision not to raise rates this time round had been expected. But Marcus cautioned "the committee continues to hold the view that we are in a rising interest rate cycle."