South Africa needs faster economic growth and credible fiscal consolidation to secure its first credit rating upgrade in two decades, a senior S&P Global Ratings official said on Wednesday.

At its most recent review of South Africa last month, S&P affirmed the sub-investment grade 'BB-/B' foreign currency rating and maintained a "positive" outlook.

A "positive" outlook for sub-investment sovereigns is usually settled within a year, said Ravi Bhatia, director and lead analyst at S&P, referring to the timeframe the firm has to decide whether to upgrade the rating or downgrade the outlook.

S&P assigned its positive outlook on Africa's most industrialised economy in November.

A rating upgrade hinges on three things: faster growth, credible fiscal consolidation and an absence of fresh bailouts for state-owned companies, Bhatia said.

"If the momentum continues - you see slightly better growth, steady fiscal consolidation and no extra bailouts - the pressure is for an upgrade," Bhatia told delegates at the agency's annual South Africa conference in Johannesburg. "But if growth deteriorates again and fiscal is not under control, we could vote back to stable," he said.

Bhatia said external risks were less of a worry for now, "It's growth and the fiscus," he said.

INFLATION TARGET

Panelists at the conference also weighed in on a long-signalled plan to lower South Africa's 3% to 6% inflation target range - which the central bank has said is too high and too wide.

"Over the medium-long terms, a lower inflation target will generate lower interest rates. That's an easier hurdle for investment," said Jeff Gable, head of macro and fixed income at Absa Bank.

The central bank last month released detailed modelling of a lower inflation target of 3%, which it said its monetary policy committee found more attractive than the 4.5% level it currently aims for.

The finance minister would need to sign off on changing the bank's inflation target, but discussions are at an advanced stage, central bank governor Lesetja Kganyago said.

The biggest benefit of the planned change would be the lowering of the cost of government borrowing, said Bhatia.

"Getting it down is good for the economy, but this transition has to be done cautiously. You don't want capital flight with foreigners still holding about a quarter of the bonds," said Bhatia.