South Africa is highly depended on exports and the rand price of commodities is very good, so we are just waiting for a rise in the global economy

John Loos Absa Group

"If inflation is allowed to accelerate unchecked, it might be perpetuated to such a degree that it could become ingrained in domestic economic processes, making its eventual eradication far more difficult," the bank said in its March quarterly bulletin.

But a gradual economic recovery appears to be on the way, with tax benefits announced last month set to offset two Reserve Bank interest rate rises this year, a leading South African bank said.

"The effects of stimulatory fiscal policy, accompanied by stronger export growth, are expected to override the effects of the ... interest rate hikes so far in 2002," Absa Group said in a research report.

Stock market gains

The rand lost about 37% of its value against the dollar last year, with most of the depreciation seen in December.

The currency was hit by a number of factors, including the global economic situation, general worries about emerging markets, and concerns about the situation in neighbouring Zimbabwe.

But the weak rand has helped to push the stock market higher.

Reserve Bank may raise interest rates in June

The all-share index ended 1% or 117 points up at 11,197.8 on Monday, thanks to a strong performance from mining stocks including as Anglo American and BHP Billiton.

Such companies are seen as benefiting from the current situation. Their exports earn foreign currency, while they pay their costs in the local currency, making them attractive when the rand weakens.

"South Africa is highly depended on exports and the rand price of commodities is very good, so we are just waiting for a rise in the global economy," John Loos of Absa Group told the BBC's World Business Report.

Economic overview

Last week the Reserve Bank raised interest rates to 11.5%, the second 1 percentage point rise this year, after inflation rose by 7.1% in the year to January, well above the 3-6% target rate.

The rise in inflation was mainly due to increases in food prices, associated with the decline in the exchange rate.

Data due on Tuesday is expected to show it accelerated to 7.6% in February, a Reuters survey on Friday showed.

In February, the government handed South Africans a 15bn rand ($1.25 billion) tax cut boost, with cuts of up to 25% for low income earners.