South Africa holds rates

Explaining the decision, the governor, Tito Mboweni, said: "The slowdown in global growth could have spillover effects on the South African economy which is also being affected adversely by electricity supply constraints."

He added: "The economy has continued to respond to the tighter monetary policy stance and inflation is expected to peak in the first quarter of 2008."

However, the governor added that "significant risks to inflation" prevailed, though he predicted inflation would fall to within the 3-6% target range by the end of the year. The monetary-policy relevant figure rose to 8.6% in December, creeping up almost three-quarters of a point from the previous month.

But despite the recent surge in inflation, many analysts expected the rise because of the recent power shortages.

The central bank has hiked rates aggressively since the summer, opting to raise borrowing costs by 50 basis points on three occasions. Razia Khan, the head of research for Africa at Standard Chartered bank, said rates had now reached a peak: "Although we firmly believe that monetary-policy relevant inflation will peak at a higher rate than the 8.5% forecast by the central bank for the first quarter (we now think there is some chance it peaks over 9%), for now, this is probably it for the rate tightening cycle."

Khan added: "As the slowdown in growth manifests itself more clearly, markets are likely to accept the need for interest rates to remain on hold. But there are more worrying inflation releases ahead, and sentiment will be vulnerable."

To read the governor's statement, click here