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Johannesburg - The South African Reserve Bank's mandate of targeting low inflation will stay although that also involves taking growth and employment into account, Deputy Finance Minister Nhlanhla Nene said on Friday.
Nene reiterated the position of Finance Minister Pravin Gordhan, who is under pressure from the ruling ANC's left wing and union allies to scrap the policy. Nene credited inflation targeting for the past decade's economic gains.
"This policy will remain in place, although we will establish and maintain an open dialogue on this policy stance with our social partners," he said in a speech in Soweto.
"Part of this dialogue will no doubt require the Reserve Bank to demonstrate that inflation targeting necessarily takes into account a broad set of factors such as growth, employment and exchange rates," Nene added.
Opponents of the policy argue that efforts to contain inflation within the 3% to 6% target range have kept interest rates too high, adding to job losses during last year's recession.
The central bank raised interest rate by 500 basis points between June 2006 and June 2008 to try and contain inflation.
It unwound those increases between December 2008 and August 2009, but Cosatu wants deeper interest rate cuts. Consumer spending remains depressed, threatening to slow the pace of recovery from the first recession in 17 years.
Nene said consumer demand recovery, job creation and careful management of debt and inflation pressures were needed to place South Africa on a new growth path.
The fiscal deficit for 2009/10 is projected at 7.3% of GDP and Treasury plans to reduce it to 4.1% by 2012/13.
"As the economy recovers, so too will revenues, but with a lag," Nene said.
"The large budget deficit therefore has to be reduced gradually, lest we become caught in a situation of rising interest payments, higher interest rates, higher taxes and slower growth. Ensuring an orderly decline in the budget deficit will require a more moderate growth in public spending."
- Reuters