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Johannesburg - South Africa's monetary policy has to continue its role of stabilising output at high but non-inflationary levels, Monde Mnyande, central bank chief economist and adviser to the governor, said on Thursday.
The South African Reserve Bank (Sarb) will make its rates decision on September 9, and is widely expected to cut its repo rate further from 6.5% to help stimulate a stuttering recovery after last year's recession -- the first since 1992.
Economic growth slowed to 3.2% in the second quarter, hurt by a contraction in mining and a manufacturing slowdown. The economy is expected to grow by about 3% in 2010 and average about that over the next three years, far below levels needed to create jobs.
Inflation, which the central bank targets in a 3% to 6% band, has slowed to a four-year low of 3.7% and is seen remaining within the target until end 2012.
Slower growth levels and easing inflation have increased calls for the central bank to add to its 5.5% points worth of reductions between December 2008 and March 2010.
Mnyande also said in the speech posted on the bank's website that lower economic growth outcomes and higher fiscal deficits pose significant risks to the government debt outlook, and could be viewed as negative for savings going forward.
South Africa's National Treasury has said it expects its debt:gross domestic product (GDP) ratio to peak at about 44% in 2015/16, before declining.
Civil servants' rejection of a higher government wage offer in favour of continuing a strike already in its third week may hurt government's budget plans to decrease its borrowing.
The government's wage bill, already a third of total expenditure, could swell even further, making it difficult for government to cut its fiscal deficit to 4% of GDP by 2013, from 6.7% in 2009/10.
"The avoidance of large budget deficits by government will be conducive to prudent savings behaviour," said Mnyande.
At 14.6%, South Africa's gross national savings as a share of GDP has declined from about 19% during the 1990s, leaving South Africa heavily reliant on foreign sources of funding for expenditure.