Interest rates would likely remain unchanged in 2011, with a slight possibility of one more cut in rates at best, Investec analyst Annabel Bishop said on Wednesday.

South Africa's repo rate is at a historical low of 5,5%, while the consumer price index (CPI) sits at around 3,6%.

Bishop said that the general expectation was that CPI inflation would not breach the South African Reserve Bank (SARB) target range of between 3% and 6% in 2011, but would instead average close to 4,5% year on year, running up to 5% in 2012.

This was more or less in line with an earlier prediction by SARB governor Gill Marcus’s prediction of 4,3% year on year and an acceleration to 4,8% in 2012.

However, Bishop pointed out that implicit in the CPI view is the assumption that food and demand pressures in general would remain subdued. She warned that the benign CPI outlook could be influenced by certain food price pressures that could occur in the next year owing to current poor weather conditions.

“If the late rains and patchy weather conditions continue to negatively affect crops there is likely to be greater than currently expected upward food price pressure in 2011, while the year’s economic demand is expected to pick up to 3,6% year on year, compared with the previous 2,8%.”

Further, Bishop said that administered price inflation had already seen price increases of such an excessive extent that CPI inflation would already be at the upper limit of the inflation target range, if not above it, if it were not for the rand’s substantial strength of the past two years.

The rand has gained 26% against the dollar since the start of 2009, and Bishop noted that this meant that the exchange rate itself was a further risk for the 2011 outlook.

Nevertheless, the general expectation for the CPI inflation outcome for 2011 among markets and most economists, along with the SARB, is that inflation would not breach the inflation target range.