One of the biggest risk factors to South Africa's inflation outlook has subsided significantly, as there has been a decline in commodity prices, the SA Reserve Bank said on Tuesday in its latest Monetary Policy Review.

"This, in conjunction with the widening output gap and the subdued household consumption expenditure, indicates that some of the pressures on inflation may be abating," the SARB said.

However, another risk had emerged in the form of the rand exchange rate which, along with other emerging-market currency exchange rates, had been negatively affected by the global financial turmoil.

Exchange rate

"The impact of the exchange rate on the inflation outlook will depend, to a significant degree, on the extent to which these new levels are sustained," the SARB said.

The Bank's current forecast was for inflation to have peaked in the third quarter of 2008.

It was the Bank's opinion that inflation would return to within the inflation target range by the second quarter of 2010.

"However, in a world of heightened turmoil and uncertainty, the risks to the outlook are amplified.

"Monetary policy will continue to focus on the expected medium-term inflation outcomes and will act appropriately to ensure that inflation returns to within the inflation target range over a reasonable time frame," the SARB said.

Sapa

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