PRETORIA, May 9 (BERNAMA-NNN-BUANEWS) -- There is little room for a cut in interest rates, with South Africa's inflation at the upper end of its target range, says Reserve Bank Governor Gill Marcus.

"The current monetary policy stance is accommodative because of the persistence of the negative output gap. However, the expected inflation trajectory suggests that there is limited, if any, room for further monetary accommodation at this stage," he said when addressing the Swiss Chamber Southern Africa in Zurich Monday.

At 5.5 per cent for the past 16 months, South Africa's benchmark repo rate is at its lowest in more than 30 years. South Africa's inflation target range is between 3.0 per cent and 6.0 per cent.

"It is important to bear in mind, however, that this view is conditional on no significant adverse changes in the other factors that the MPC (Monetary Policy Committee) takes into consideration when determining the stance of monetary policy. These include the domestic growth outlook and the continuing global fragility," explained the Governor.

In March 2012, inflation eased to 6.0 per cent. The central bank expects it to return to within the 3.0-6.0 per cent range by the end of 2012 on a "sustainable basis", after which inflation is expected to remain close to the upper end of the range "for some time".

The Governor noted that capital inflows have caused greater than before volatility in currencies in emerging markets such as South Africa. Extreme volatility that is brought about by excessive capital flows create problems for macro-economic management, he added.

On the issue of the exchange rate, Marcus said the Reserve Bank did not target a level for the Rand.

"There is an incorrect perception that the Reserve Bank attempts to keep the exchange rate strong in order to help with inflation. There is no doubt that an appreciating currency would have a moderating impact on inflation. But in order to sustain this moderating impact, the exchange rate would have to have a continuously appreciating trend, which is clearly undesirable and not feasible," she said.

A decision on interest rates is expected on 24 May following the Monetary Policy Committee meeting.

-- BERNAMA-NNN-BUANEWS