SOUTH African inflation is expected to remain within its 3%-6% target range until the end of 2014, with the main upside risk coming from falls in the rand due to investors' risk aversion, the Reserve Bank said on Wednesday.

In its 2011-12 annual report, the central bank reiterated that the domestic growth outlook had deteriorated mainly due to global uncertainties, saying it had trimmed its forecasts.

"The global environment continues to provide an uncertain, unstable and risky backdrop against which price and financial stability in the domestic economy have to be maintained," governor Gill Marcus said in a statement accompanying the report.

The depreciation of the rand in response to global risk aversion had become the main upside risk to the domestic inflation outlook, Ms Marcus said.

The Bank, in conjunction with the National Treasury, bought about $4bn of foreign exchange in the financial year ended March 2012.

It said the foreign exchange accumulation was in an attempt to contribute to "greater stability" in the foreign exchange market.

These measures have, however, not had meaningful impact as the rand continues to respond more to external developments including the slowdown in European economies and sovereign debt woes in that region.

"The process of sterilising the impact of these purchases on domestic liquidity contributed to the bank reporting an after-tax loss of R490,5m, compared with a loss of R1,2bn in the previous financial year," Ms Marcus said.

The Bank reported that a significant actuarial loss, incurred in meeting the post-employment medical benefit liabilities of staff, also contributed to the overall losses in the 2011-12 financial year.

Ms Marcus said oil no longer posed as much of a threat to the inflation outlook as it did a few months ago. The price of crude oil has eased in recent weeks, in line with other commodity prices.

Ms Marcus referred to as "extremely serious" the eurozone economic crisis. She said the Bank agreed "with other central bank governors" that European economies were "halfway" in addressing their economic and sovereign debt woes.

Parts of Europe were already in recession and Ms Marcus said the Bank was hoping "initiatives" taken at the recent European Union (EU) summit to find resolutions to the crisis would "last longer".

"It's a very grim situation and outlook. In many ways economies are battling," she said.

With Reuters