By Phumza Macanda JOHANNESBURG, May 29 (Reuters) - South Africa risks a slide towards fresh consumer pain and poverty-provoked violence after the central bank chief vowed drastic action to fight inflation and the state electricity supplier warned a power crisis could last for years. The economic backdrop has deteriorated sharply in Africa's biggest economy, rocked this year by a series of crippling power cuts, soaring consumer prices that touched a near 5-1/2 year high of 10.4 percent in April and a wave of anti-immigrant violence as poor South Africans protested against poverty. Central bank Governor Tito Mboweni pledged late on Wednesday to bring prices down towards the bank's 3-6 percent target range, hinting that as many as 200 basis points could be added to interest rates next month to do it -- words that sent investors into a spin and bond yields rocketing upwards. "You don't have to be a genius to tell that interest rates have to tighten. When CPIX is above that (3 to 6 target percent) range, clearly drastic measures have to be taken," Mboweni said at a seminar. Mboweni said he had discussed a 200 basis point increase next month with a colleague and later told Bloomberg that such a hike "is possible". His spokeswoman Samantha Henkeman said on Thursday that the governor stood by his comment. "The governor would never say that if he did not mean it." The central bank has hiked the repo rate nine times since June 2006 -- by 50 basis points each time -- to 11.5 percent. Its policy committee meets again on June 11-12. Government bond yields jumped on Mboweni's comments, with the 2010 <ZAR153=> yield spiking by as much as 48 basis points to 11.55 percent, before retreating to 11.41 percent. The rand rallied almost one percent to 7.600 against the dollar and was trading at 7.6465 at 1235 GMT. Traders said it could gain further as higher interest rates attract yield-seeking capital. Banking shares tumbled as much as 3.6 percent, to their lowest levels since September 2006 <.JBANK>. The reaction of investors was indicative of the economic pressures building in the country which exploded into violence earlier this month when at least 50 people were killed after poor South Africans attacked African migrants in squatter camps, accusing them of stealing jobs and fuelling crime. The attacks deeply damaged the country's image abroad. TOUGH TIMES Analysts say the government's failure to spread economic gains to the poor could spark wider social unrest. Meanwhile the robust growth that has chipped away at official unemployment of around 25 percent is slowing. GDP growth hit a 6-1/2 year low of 2.1 percent quarter-on-quarter, annualised in the first three months of 2008, more than halving from the 5.3 percent achieved in Q1 2007. Food and fuel costs, the biggest expense for the poor, continue to leap. Standard Bank, Africa's biggest by assets, warned on Wednesday higher interest rates, power cuts and rising fuel and food costs had led to a "challenging operating environment". "The level of consumers' disposable income available to cover increasing debt instalments has been materially impacted by sharply increasing inflation," its CEO Jacko Maree said. A caller on 702 radio moaned further interest rate hikes could be disastrous. "I'm now paying 12,000 rand ($1,569) more on my mortgage over the past year ... what is the next step now? Is the bank going to take my house and my car. I really don't know what's going to happen from next month," the caller said. Households battling debt have also faced power cuts that have left homes blackened and traffic gridlocked. Utility Eskom [ESCJ.UL], which produces about 95 percent of South Africa's electricity, is struggling to meet demand and has urged nation-wide energy savings to prevent blackouts like those in January when the national grid virtually collapsed, plunging business and millions of people into darkness. Full power still hasn't been restored to mines after they were forced to close for 5 days in January, slamming production and causing 22.1 percent drop in output in the first quarter of the year -- in turn knocking GDP growth. Eskom has embarked on a $46 billion infrastructure expansion programme and has asked for a 53 percent tariff rise to help foot the bill. The National Energy Regulator will rule on it next month, which if granted, will further ignite inflation. The company's CEO Jacob Maroga said on Thursday the crisis could last for years but added he would accept a regulator decision to smooth out the price increase. Analysts said a significant power tariff rise will keep inflation above the upper end of the central bank's target band for longer, raising the spectre of yet more interest rate hikes. (Additional reporting by Gordon Bell; Editing by Nick Edwards)
An African immigrant displaced by xenophobic violence feeds her child at the Emmanuel Cathedral in Durban May 27, 2008. South Africa said on Monday violent attacks on immigrants which have killed ...
