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Johannesburg - The South African Reserve Bank may need to ease interest rates further if demand growth continues to disappoint, the Organisation for Economic Cooperation and Development (OECD) said on Monday.
"The first line of defence if the economy is weaker than projected should be monetary policy," the OECD said in a report, adding there seemed to be scope for further reductions in the central bank's policy rate.
Domestic growth was at 1.3 percent in the second quarter and with a deteriorating global growth outlook, weaker-than-expected domestic growth outcome in the second quarter, and the impact of industrial action on key sectors of the economy, the central bank sees growth at 3 percent this year.
Emerging markets have been hit by a global rout that saw the rand plunge to 2009 levels of 8.61 against the dollar last week. By 1230 GMT on Monday the rand had recovered to 8.3690 to the dollar.
The OECD said although there was likely to be some passthrough of a weaker rand exchange rate to consumer prices, “the South African Reserve Bank (SARB) should continue to look through such temporary factors, and may need to ease further if demand growth continues to disappoint”.
Inflation hit the top end of the SARB’s target at 6 percent in October, and is expected to peak at 6.3 percent in the first quarter of 2012 before easing back within the target.
The OECD also said fiscal consolidation should be accelerated in Africa’s largest economy.
“On the current projection, a more ambitious profile of fiscal consolidation would not only safeguard debt sustainability but also contribute to higher national saving, reduce upward pressure on the exchange rate and crowd in private investment”.
South Africa’s National Treasury has projected the budget shortfall to widen to 5.5 percent in the 2011/2012 financial year.
Finance Minister Pravin Gordhan said in a statement earlier on Monday South Africa did not need additional policy changes and continued exchange control liberalisation would encourage greater two-way demand for the rand, mitigating its volatility.
Market expectations are for gross domestic output to have picked up to 1.8 percent in the third quarter of the year.
"The first line of defence if the economy is weaker than projected should be monetary policy," the OECD said in a report, adding there seemed to be scope for further reductions in the central bank's policy rate.
Domestic growth was at 1.3 percent in the second quarter and with a deteriorating global growth outlook, weaker-than-expected domestic growth outcome in the second quarter, and the impact of industrial action on key sectors of the economy, the central bank sees growth at 3 percent this year.
Emerging markets have been hit by a global rout that saw the rand plunge to 2009 levels of 8.61 against the dollar last week. By 1230 GMT on Monday the rand had recovered to 8.3690 to the dollar.
The OECD said although there was likely to be some passthrough of a weaker rand exchange rate to consumer prices, “the South African Reserve Bank (SARB) should continue to look through such temporary factors, and may need to ease further if demand growth continues to disappoint”.
Inflation hit the top end of the SARB’s target at 6 percent in October, and is expected to peak at 6.3 percent in the first quarter of 2012 before easing back within the target.
The OECD also said fiscal consolidation should be accelerated in Africa’s largest economy.
“On the current projection, a more ambitious profile of fiscal consolidation would not only safeguard debt sustainability but also contribute to higher national saving, reduce upward pressure on the exchange rate and crowd in private investment”.
South Africa’s National Treasury has projected the budget shortfall to widen to 5.5 percent in the 2011/2012 financial year.
Finance Minister Pravin Gordhan said in a statement earlier on Monday South Africa did not need additional policy changes and continued exchange control liberalisation would encourage greater two-way demand for the rand, mitigating its volatility.
Market expectations are for gross domestic output to have picked up to 1.8 percent in the third quarter of the year.
