The Bureau for Economic Research (BER) on Thursday revised its average rand forecast for the fourth quarter from R8,45 to the dollar to R7,50 and added that the current drivers of rand strength could persist for "some time".

These drivers included large foreign capital flows into emerging markets and sustained weakness of the dollar.

So far this year, South Africa has attracted "unprecedented" foreign inflows into the bond market. Non-residents have, to date this year, bought nearly R72-billion of bonds, compared with foreign purchases of South African bonds of R34,5-billion in the four years to 2007.

Foreigners have also bought R22-billion of equities on the JSE this year.

Nevertheless, the BER has left its rand dollar exchange rate projections for the fourth quarter of 2012 unchanged at R8 to the dollar, saying that the rand was likely to weaken again as interest rates in advanced economies start to rise and capital inflows to emerging markets start reducing.

The rand has continued to strengthen throughout this year, placing pressure on local export industries.

Meanwhile, the BER expected South Africa's gross domestic product (GDP) growth to remain below 4% up to 2012, amid a still fragile global economic recovery.

The high unemployment rate was dampening the acceleration of consumer spending, which, along with the strength of the rand and soft global growth, was hampering the recovery of exports, the researchers indicated.

Further, it added that domestic fixed investment would also likely remain depressed for the foreseeable future.

"As a result, GDP growth for the 2010 calendar year is expected to be around the 3% mark," said BER senior economist Hugo Pienaar.

Depending on what happens in the global economic landscape, the local GDP was expected to improve marginally to 3,4% in 2011 and 4% by 2012.

These estimates were in line with National Treasury's expectations of GDP growth for the next three years. The national department had indicated in the Medium-Term Budget Policy Statement, released in October, that the country's GDP would expand by 3% this year, 3,5% in 2011 and by 4,1% in 2012.

Government was aiming to improve GDP rates to above 6% a year in order to reach its job-creation targets.

INFLATION AND RATE CUTS

Meanwhile, consumer inflation was anticipated to average at 4,3% this year, but would accelerate to 5,7% during 2012 owing to the cumulative effects of large electricity price hikes and the fact that projected GDP growth would be closer to the economy's potential growth rate, said the BER.

The researchers indicated that a further 50 basis point cut in the repo rate could possibly be announced following the monetary policy committee's (MPCs) final meeting for this year, on November 17 and 18.

A further 86 000 job losses in the third quarter of the year, the continued strengthening of the rand and an improved central bank inflation forecast could prompt the MPC to make another rate cut.

The repo rate was expected to remain stable at the current lows over the next 12 months, with a "tightening cycle" set to start in 2012, stated the BER.