S.Africa has some leeway on inflation: Strauss-Kahn
By Ed Cropley
JOHANNESBURG (Reuters) - South Africa's government is right to set inflation targets but has leeway for some flexibility as the country looks to emerge from recession, International Monetary Fund head Dominique Strauss-Kahn said.
"I have to applaud steps taken in the new budget. The budget was in line with what is needed for the South African economy," he told reporters, adding that he agreed with "most points" of the government's economic policy.
Under plans presented last month, Finance Minister Pravin Gordhan aims to only gradually reduce the budget deficit to help spur a recovery, keeping up spending to help create jobs.
The government kept its 3 to 6 percent inflation target intact, though Gordhan wrote to Reserve Bank Governor Gill Marcus stressing she had the flexibility to also focus on growth and jobs.
"Inflation targeting is certainly for an economy of this size...the right policy to follow," Strauss-Kahn said. But it should be implemented with "some flexibility".
The trade union allies of South Africa's ruling ANC want inflation targeting to be scrapped, arguing the central bank's attempts to control prices have left interest rates too high, hurting the economy.
Analysts, though, say the Reserve Bank is already flexible in its decision-making, having cut the repo lending rate by 5 percentage points to 7 percent between December 2008 and August last year despite inflation being outside the target band.
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