South African Central Bank will reduce its key interest rate tomorrow for the third time this year

South African Central Bank will probably reduce its key interest rate tomorrow for the third time this year as a rally in the rand keeps inflation under control and erodes the competitiveness of exports.

The Pretoria-based Reserve Bank will lower the repo rate by half a percentage point to 5.5 percent, according to 17 of 22 economists. The rest expect the rate to remain unchanged.

The rand has gained 34 percent against the dollar since early 2009, reducing the cost of imports and helping to push the inflation rate to its lowest level in more than five years. The progress of the coin also has dampened manufacturing, which grew annually by 1.4 percent in September, the slowest pace in 11 months, fueling calls for the unions to the central bank to do more to stimulate growth and create jobs work.

"The production figures were poor and give the impression that the economy is recovering not just" fast enough, "said Don Egginton, London's chief long-term analysis and models of Daiwa Europe's capital markets. The central bank "has been quite negative on direct measures to weaken the rand, leaving them with reduced interest rates."

Companies like Platinum Ltd. Johannesburg-based Anglo and Sasol Ltd., which incur costs in rand and make sales in dollars, have said the rand's strength is eroding their profit margins. Grain SA, a group of farmers, said Oct. 13 that the rally in the currency was hampering efforts to export a surplus of 4.5 million metric tons of grain.

Accelerates sales growth

The release of more-than-expected retail sales data today may have remained the case for further rate cuts, said Kevin Lings, an economist at Stanlib Asset Management in Johannesburg.

Sales growth accelerated to 6.1 percent annually in September from 4.6 percent the previous month, the government's statistics agency. The median estimate of 13 economists  was for growth of 4.3 percent.

Inflation slowed to 3.2 percent in September, the lowest since June 2005 and has remained within the range of 3 to 6 percent target the central bank since February. The Reserve Bank, which has reduced the repurchase rate eight times since December 2008, expects inflation to remain within the band at least until the end of 2012.

End of Cycle

"There is no real reason for them not to cut rates," said Rashaad Tayob, a fund manager in Cape Town-based management Aeon Investments. "You could cut again after this, but we are nearing the end of the cycle."

A rate cut would reduce the gap with advanced countries and relieve pressure on the rand. reference rate South Africa compares with rates of between zero and 0.25 percent in the U.S., up 1 percent in the countries using the euro and 0.1 percent in Japan.

South Africa, China and Brazil have criticized the U.S. Federal Reserve of its latest round of monetary stimulus, saying it will push more money into emerging markets, the strengthening of their currencies and undermine exports.

The rate decision takes place in "a global context that adds downside risk to both growth and inflation prospects," said Adena Hardie, chief economist at Cape Town-based Cadiz Asset Management.

The growth in South Africa slowed to an annualized rate of 3.2 percent in the second quarter from 4.6 percent in the last three months, mining exports plummeted. In the medium term budget released on 27 October, the National Treasury, said he expects the economy to grow 3 percent this year.

Weak growth

The sluggish growth pushed the unemployment rate to 25.3 percent in the second quarter, the highest of the 62 countries tracked by our team

the largest union in South Africa for manufacturing workers placed a half-page ad in a newspaper on 4 November criticize the economic policy of the government and calls for more measures to weaken the rand.

"The Treasury and the Reserve Bank not to manage our economy to promote growth and development," said National Union of Metalworkers of South Africa, which has more than 260,000 members in the notice published in the based Business Day in Johannesburg.

Budget Deficit

The unions have called for a weaker rand, lower interest rates and increased government spending.

Instead, the government aims to reduce the budget deficit to 4.6 percent of GDP in the year to March 2012 from 5.3 percent this fiscal year.

A smaller deficit would give "more space for the central bank" to cut rates, according to Finance Minister Pravin Gordhan.

"Businesses would welcome lower interest rates," he said in an interview on 27 October in Cape Town. "It would be advantageous to encourage investment, it would be advantageous to the exchange rate."