A fresh rise in South African interest rates, the third this year, has pushed the rand lower on fears that the country's central bank is focusing too strongly on inflation at the expense of growth.

By lunchtime on Friday the rand was at 10.41 to the US dollar, off the day's low of 10.43, but still not far from a five-week trough.

Watch this space

Tito Mboweni, central bank governor, on the chances of further rate rises

On Thursday, the Reserve Bank said it was raising rates by a full percentage point to 12.5% as the governor, Tito Mboweni, warned of "considerable risks" on inflation.

Ticking off a list including public sector wage increases, rising oil prices and higher bank lending, Mr Mboweni said the bank risked missing its target of a 3-6% inflation rate by 2003.

That rang warning bells among economists, who have widely attributed the current high inflation rate - consumer price inflation is at 8.8% - to the 40% slide in the value of the rand last year.

The 3 percentage point increase in interest rates since January are intended to correct that.

Onwards and upwards

Friday's movement in the rand runs counter to the traditional relationship between interest rates and currencies, which normally sees rate rises push the exchange rate up.

This time, however, the danger that higher borrowing costs could snuff out badly needed investment is deterring the capital inflows which support the rand.

The rise came as little surprise to economists, most of whom were firmly backing a move to 12.5%.

But till Thursday few were expecting any further rises this year.

Now, however, Mr Mboweni seems to be suggesting something different.

In an interview on South African television, he warned that inflation was unlikely to hit the target in 2002, peaking in the final quarter of the year.

Asked whether the rise would be the last, he replied: "Watch this space."