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South Africa Has Scope for More Interest Rate Cuts: OECD

Nov. 27 (Bloomberg) -- South Africa’s central bank has scope to cut interest rates further to bolster growth in the face of the global economic slowdown, the Organization for Economic Cooperation and Development said.

The Reserve Bank has left the benchmark interest rate unchanged at 5 percent since July as a weaker rand and rising food and fuel prices stoked inflation, limiting its room to stimulate the economy. Even so, inflation has remained within the Pretoria-based bank’s 3 percent to 6 percent target for the past six months.

“Core inflation will be contained by the large degree of slack in the economy,” the OECD said in its November 2012 Economic Outlook released today. “Monetary policy should be used to provide short-term stimulus. There is scope for further easing while staying within the inflation-target band.”

The Paris-based OECD expects inflation in South Africa to slow to 5.4 percent in 2013 from 5.6 this year and predicts Africa’s biggest economy will expand 2.6 percent this year and 3.3 percent in 2013. That’s more optimistic than the central bank’s Nov. 22 forecast for 2.5 percent growth in 2012 and 2.9 percent the following year.

“The recovery has been held back by private-sector deleveraging, as household debt-to-income ratios remain high while business and consumer confidence are weak,” the OECD said. There is also “slow growth of external demand. In addition, a wave of wildcat strikes that began in the mining sector in the third quarter of 2012 and subsequently spread appears to have had significant output costs.”

On Nov. 11, the International Monetary Fund also said the case for further easing on monetary policy was building as the global economy slowed and the strikes curbed growth.

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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