Bloomberg News

IMF Says Case for Further South Africa Rate Cuts Is Building

November 07, 2012

The case for further interest-rate cuts in South Africa is building as the global economy slows and recent labor disputes hurt output, according to the International Monetary Fund.

The central bank unexpectedly cut the benchmark interest rate by 0.5 percentage point to 5 percent in July to bolster the economy as the European debt crisis eroded demand for South African exports. On Oct. 25, Finance Minister Pravin Gordhan cut his growth outlook for this year to 2.5 percent from a February estimate of 2.7 percent, partly reflecting a loss of production at gold, platinum and coal mines because of strikes .

“The deterioration in the global economy, as well as the internal domestic strikes that you have in the mining sector, as well as other sectors of the economy, has without doubt had some impact on growth,” Calvin McDonald, the South African delegation chief in the IMF’s African department, told lawmakers in Cape Town today. These developments “strengthen the case” for South Africa to “rely increasingly on monetary policy to support economic recovery if conditions in the global environment continue to deteriorate.”

The central bank’s Monetary Policy Committee will make its next rate decision on Nov. 22.

The IMF regards the central bank’s 3 percent to 6 percent inflation target band as appropriate and allowing sufficient flexibility, and sees no need for it to be adjusted, McDonald said.

He urged the government to stick to its commitment to rein in borrowing to buoy investor confidence and contain growth in spending on civil servant salaries.

The IMF said on Oct. 9 that Africa’s largest economy will probably expand 2.6 percent this year and 3 percent in 2013, forecasts that were prepared before a wave of strikes broke out in August. The estimates have yet to be revised, McDonald said.

“We haven’t had any discussions with the government yet,’ he told reporters. “Things seem to have stabilized somewhat, which is good.”

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net


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