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OECD: SA has room to cut rates

Economy

Johannesburg - South Africa has room to ease monetary policy further to help boost growth, the Organisation for Economic Co-operation and Development said in a report released on Monday.

“With core inflation remaining well contained, monetary policy has been eased cautiously but not by enough to prevent an increasing degree of slack in the economy,” the Paris-based group said.

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Cape Town. 100219. South Africa is coming out of its first recession in almost two decades reasonably rapidly, says Reserve Bank Governor Gill Marcus. Marcus also said monetary policy remains directed towards containing inflation. The central bank has cut rates by 500 basis points since December 2008, and left the repo rate flat at 7,0% at its last four meetings. Picture Mxolisi Madela

The South African Reserve Bank has kept the benchmark repo rate at 5.0 percent since reducing it by 50 basis points last July, citing rising inflationary pressures including the impact of a sharply weaker rand currency.

Most economists see no further scope for easing, although growth remains lacklustre after Africa's biggest economy suffered a recession in 2009.

Finance Minister Pravin Gordhan last week cut the economic growth forecast for 2013 to 2.7 percent from a previous projection of 3 percent.

The economy is estimated to have grown 2.5 percent in 2012.

Slow growth and revenue underperformance have also seen wider budget deficit forecasts for this and next year, with a deficit of 4.6 percent of GDP seen in the 2013/14 year that begins April 1, from the 4.5 percent previously expected.

The OECD said government should look at adopt a more “growth friendly” taxation system by reducing taxes on corporate profits and raising property taxes.

“The macroeconomic policy mix has been insufficiently supportive of growth while allowing large budget deficits to persist,” it said. - Reuters

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