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Another Rate Hike Expected for South Africa

FILE: A portrait of the late Nelson Mandela is photographed on two hundred rand bills in Johannesburg. taken Thurs. Dec. 10, 2015.

JOHANNESBURG - South Africa's Reserve Bank will raise interest rates one last time in its current cycle on May 25, adding at least 25 basis points in a final bid to cool persistently sticky inflation, a Reuters poll found on Wednesday.

Eleven of 20 economists surveyed in the past week expect the South Africa Reserve Bank [SARB] to hike by 25 basis points to 8.00%, while five forecast a half-a-percent rise to 8.25%. The remaining four predicted no change.

The SARB has hiked its repo rate by 425 basis points in the past 18 months, tracking moves by major central banks.

South Africa's central bank is expected to pause after next week's hike, the poll found.

The SARB will then cut rates by 25 basis points in the first quarter of next year, followed by another 25 bps cut in the third quarter, according to a consensus of forecasts from the poll.

South Africa's next inflation release is due on May 24, and "we expect bad news on both fronts: sticky inflation and another SARB hike," wrote Tatonga Rusike, economist at Bank of America.

Inflation is expected to average 5.9% this year, slow to 4.9% next year and move closer to the mid-point of the Reserve Bank's comfort level of 3%-6% at 4.6% in 2025.

"Overall, inflation should decelerate from here. Upside risks are linked to food prices, currency weakness and additional load-shedding costs," added Rusike.

The country's economic growth is expected to slow to 0.2% this year, accelerating to 1.3% in 2024.

Sentiment for the South African rand has soured on local media reports of a further delay to maintenance at the country's only nuclear power station, heightening fears South Africa's ongoing power crisis will deepen.