CAPE TOWN (Reuters) - South Africa's economic recovery is not sustainable yet and is still relying on loose monetary and expansionary fiscal policies, deputy Finance Minister Nhlanhla Nene said on Wednesday.
Nene's comments suggest there is a case for delaying interest rate increases until the recovery is more broad-based.
Reserve Bank chief economist Monde Mnyande said last week monetary policy could remain favourable.
The Reserve Bank has left the repo rate steady at 5.5 percent this year, after reducing it by 650 basis points between December 2008 and December 2010.
The market is divided on whether the central bank will start tightening policy in the fourth quarter of 2011 or early next year. Its next meeting is on July 19-21.
The economy grew by a stronger-than-expected 4.8 percent in the first quarter of 2011 but Nene said this was not enough.
"While this recovery is stronger than a year ago ... its foundations are not yet sustainable and it is highly dependent on support from expansionary fiscal and monetary policies," Nene told a G20 conference on infrastructure and growth.
Manufacturing data showed production levels remained sluggish while credit growth, although rising, was also weak.
Inflation in May quickened to 4.6 percent year-on-year, mainly driven by food prices, raising the chance of an interest rate rise before year-end.
source:reuters
