According to a brief published on Wednesday, international investors are becoming increasingly worried as oil prices climb and the danger of stagflation is growing more likely.
Merrill Lynch and Bank of America says international investors are also uncertain whether this was a short-term spike or represented something more permanent.
There is a chance that the Sarb could be forced into earlier than expected tightening by the current surge in oil prices. But Merrill Lynch believes the the Sarb would likely try in the first instance to accommodate the commodity shock "as it would likely provide a serious headwind to economic recovery".
"Only a persistently elevated oil price above $120bbl would likely elicit action from the SARB, in our view, as it attempted to head off second round effects on prices and wages."
According to the brief, South Africa’s economic recovery at 3,5 percent is sub-par, and that inflation will accelerate to 6 percent. But the investors also believe the rand will weaken against the dollar to a level of 8.00 by year-end.
On the upside, Merrill Lynch reports its likely that a "low-for-longer" interest rate environment could bring surprises for household spending in 2011 - and possibly for economic growth.
It’s believed that low interest rates levels would continue to assist spending by heavily indebted upper income households or LSM 8-10, but a stabilization in the labour market would boost lower-to-middle income households or LSM 4-7’s.
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There’s also a possibility that with low inventories, a potential growth could see sudden accumulation of stocks.
"Given the import-intensive nature of inventories, a sharper than expected rebuild by firms could lead to a greater than expected widening in the current account deficit, in our view," says the brief.
But the rand’s strength has surprised some - although since mid February it dropped from 7.35 down to 6.95.
"We continued to argue that there was a medium-term bias for a weaker Rand given more modest portfolio inflows this year relative to record bond inflows during 2011."