Gordhan lauds SA's economy despite stifling monetary policy

Finance Minister Pravin Gordhan and President Jacob Zuma during the Brics summit in Durban in March. (AFP)

Finance Minister Pravin Gordhan and President Jacob Zuma during the Brics summit in Durban in March. (AFP)

The comments on Tuesday, in an interview as part of a Reuters Investment Summit, suggested President Jacob Zuma's administration saw no need to encourage the bank to boost growth by loosening monetary policy 12 months ahead of a general election.

Finance Minister Gordhan also said the crisis in Europe was still a drag on the domestic economy, hurting exports that were still coping with the fallout from strikes in the mining sector last year.

The Reserve Bank left the repo rate at a historic low of 5% last month, but the Organisation for Economic Cooperation and Development said it had room to loosen policy further to assist the sluggish recovery by Africa's biggest economy from a 2009 recession.

Most economists polled by Reuters expected rates to stay on hold through 2013.

The bank has kept rates on hold since a 50 basis-point cut last July, saying the need to accelerate growth has been offset by a deterioration in the inflation outlook due to a sharp fall in the rand.

"They have done fairly well to take the economic growth and employment situation into account," Gordhan said.

"They have been careful about balancing perceived risks on the one hand with the necessity to support the economy on the other hand. Let's see what the next few months bring."

South Africa's central bank has an inflation target mandate of 3% to 6% but Gordhan in 2010 broadened its responsibilities to include economic growth and employment, although without specific targets.

Europe's influence on SA economy
Gordhan in February cut South Africa's 2013 growth forecast to 2.7% from 3% due to lower demand both locally and from Europe, which absorbs about a third of South African exports.

"Europe still acts as a major cloud over both our own economy and the economies around the world," Gordhan said, vowing to maintain a cyclical fiscal policy that has allowed South Africa to keep money flowing to social benefits and infrastructure.

But Zuma's government will not yield to pressure to increase spending ahead of next year's election, despite growing pressure at the polls from opposition parties, he added.

"We are one of the few developing economies that don't rely on external debt too much. It's an important prop to the fiscal sovereignty we enjoy," Gordhan said. "We will guard that very jealously at all times."

Gordhan also said he saw no immediate threat to the foreign portfolio flows into local bonds that have helped plug a current account deficit of more than 6% of gross domestic product.

The gap, coupled with concerns about domestic industrial unrest and weak growth, has put pressure on the rand, which hit a four-year low of 9.3655 on March 21.

However, increased flows in the last week have pushed the rand to 8.944 against the dollar, a five-week high, as global investors have sought yield after the announcement of aggressive bond-buying, or quantitative easing, from the Bank of Japan.

"There is no immediate danger to those flows," Gordhan said. "At the same time we are working hard at a global level to ensure any retreat from quantitative easing is managed in such a way that it doesn't send shock waves through the global system." – Reuters



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