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The key comment in Tuesday?s South African Reserve Bank (SARB) Monetary Policy statement is the Bank?s confirmation that 'the focus of the MPC is on the longer-term expected trend of inflation'. And, despite the Bank?s below-trend GDP growth forecasts of two percent in 2010 and three percent in 2011, the case to leave interest rates unchanged was sealed by the medium-term inflation forecast which shows CPI is, according to the Bank, 'likely to remain close to the upper end of the inflation target range over the forecast period'.

Inflation could, however, surprise to the downside of expectations in the months ahead.

Given the lagged impact of last year?s rand appreciation, headline CPI could slow to below five percent by around May (following a temporary rise in December and January). Further, if the currency continues to remain firm, medium-term inflation forecasts are likely to be revised down. If so, the door to an additional interest rate cut is not entirely shut as yet.

Interestingly, the MPC statement suggests intervention by central banks to stem currency appreciation is often expensive and not especially successful. So, it does not appear as if the Reserve Bank is in the mood to get involved in weakening the rand.

Overall, as the business cycle recovery unfolds we are close to, or at, the bottom of the interest rate cycle. But at least we can say that if growth remains below trend through 2010 and the medium-term inflation forecast continues to reflect CPI within the inflation target band, the Bank should be able to maintain interest rates at a low level for an extended period.