South Africa's central bank said on Tuesday the inflation outlook had deteriorated markedly and it would not hesitate to act to quell price pressures, although gave no clues as to when it might start raising rates.

The Reserve Bank's Monetary Policy Committee (MPC) has left its repo rate unchanged at its three meetings this year after reducing it by 650 basis points to 5,5% between December 2008 and December 2010.

"The MPC will remain vigilant with respect to indications of second-round effects or generalised inflation and will not hesitate to take timeous appropriate action, particularly if inflation is expected to move out of the target range on a sustained basis," the bank said in its Monetary Policy Review.

"The bank will continue to give primacy to its objective of price stability and implement monetary policy within a flexible inflation-targeting framework."

Inflation ticked up to 4,2% year-on-year in April from 4,1% in March and stood at 3,6% when excluding food, non-alcoholic beverages and petrol prices.

At its MPC meeting this month, the bank raised its inflation outlook and said it expected inflation to pierce its 3% to 6% target band briefly, peaking at 6,3% in the first quarter of 2012.

It said there were no discernable signs of pressures from the demand side of the economy at this stage, with the main upward pressures coming from higher food and oil prices.

Due to upward inflation revisions, the next adjustment in rates is expected to be up but analysts are divided on whether they will start rising in the fourth quarter or early 2012.

TIMING FOR TIGHTENING?

The Review did not give strong hints on the timing of the tightening cycle but said implementing policy within a flexible inflation targeting framework was a "fine balancing act" given the relatively fragile state of the domestic economy.

Growth in Africa's biggest economy has improved but remains below potential and undermined by weak investment spending. The bank also said the impact of rising commodity prices and sovereign debt crises in Europe were the main risks to the growth outlook.

South Africa has been able to keep interest rates at 30-year lows because the strength of its currency, the rand, has cushioned the impact of higher oil and food prices, keeping inflation within the target range since February 2010.

The bank said adjustments in the rand exchange rate would affect the inflation outlook.

The rand is currently trading around 7,00 against the dollar, a gain of more than 26% since the beginning of 2009.

It hit its strongest level in more than three years last month but has weakened since then.

Finance Minister Pravin Gordhan has said the strong rand was fortunate given the high oil and food prices and the government was not going to take further steps – over and above accumulating foreign exchange reserves – to weaken it.