South African finance minister says central bank balancing growth with inflation "fairly well"

EUROPE MAJOR CLOUD ON ECONOMY

Gordhan in February cut South Africa’s 2013 growth forecast to 2.7 percent from 3 percent due to lower demand both locally and from Europe, which absorbs about a third of South African exports.

“Europe still acts as a major cloud over both our own economy and the economies around the world,” Gordhan said, vowing to maintain a cyclical fiscal policy that has allowed South Africa to keep money flowing to social benefits and infrastructure.

But President Jacob Zuma’s government will not yield to pressure to increase spending ahead of next year’s election, despite growing pressure at the polls from opposition parties, he added.

“We are one of the few developing economies that don’t rely on external debt too much. It’s an important prop to the fiscal sovereignty we enjoy,” Gordhan said. “We will guard that very jealously at all times.”

Gordhan also said he saw no immediate threat to the foreign portfolio flows into local bonds that have helped plug a current account deficit of more than 6 percent of gross domestic product.

The gap, coupled with concerns about domestic industrial unrest and weak growth, have put pressure on the rand, which hit a four-year low of 9.3655 on March 21.

However, increased flows in the last week have pushed the rand to 8.944 against the dollar, a five-week high, as global investors have sought yield after the announcement of aggressive bond-buying, or quantitative easing, from the Bank of Japan.

“There is no immediate danger to those flows,” Gordhan said. “At the same time we are working hard at a global level to ensure any retreat from quantitative easing is managed in such a way that it doesn’t send shock waves through the global system.”