South Africa Has Room to Cut Borrowing Costs, OECD Says

South Africa has room to lower borrowing costs to stimulate an economy that expanded at the slowest pace last year since a recession in 2009, the Organization for Economic Cooperation and Development said.

The economy will grow 2.8 percent this year after rising 2.5 percent in 2012, the Paris-based organization said in a report released today. The National Treasury cut its forecast for growth to 2.7 percent last week from a previous estimate of 3 percent.

“Given the slack in the economy and the subdued prospects for near-term growth, the macroeconomic policy mix should aim to boost domestic demand,” the OECD said. “This would be best accomplished via a combination of tighter fiscal policy and monetary easing as this would deliver policy stimulus while avoiding upward pressure on the exchange rate, supporting national saving and safeguarding fiscal sustainability.”

Reserve Bank Governor Gill Marcus in January forecast inflation will breach the top end of the bank’s 3 percent to 6 percent target this year, limiting the room to cut borrowing costs. Policy makers kept the benchmark rate at 5 percent, the lowest level in more than 30 years, in January after a surprise interest-rate cut in July.

The government doesn’t have room to provide fiscal stimulus to the economy, according to the National Treasury. Finance Minister Pravin Gordhan reduced the revenue estimate for the fiscal year through March in his budget last week and delayed plans to tighten the budget gap. The deficit will widen to 5.2 percent in the 12 months through March.

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