Recent interest-rate adjustments may have a negative impact on output in the short term but they will ensure that inflation remains within the target band over the long run, Minister of Finance Trevor Manuel said on Monday.
He said this in turn will be beneficial for competitiveness and hence sustainable growth over the long run.
Replying to a written question from Democratic Alliance MP Ian Davidson, who asked whether the South African government anticipated that the repo-rate rise would have “a negative impact” on the Accelerated and Shared Growth Initiative for South Africa (AsgiSA), the minister said on Monday that the advantages of maintaining low and stable inflation rates “are well documented”.
“Maintaining low inflation to ensure domestic competitiveness in foreign markets remains important to our approach to economic policy,” said Manuel.
Asked if he intended revising the 2006/07 gross domestic product (GDP) growth forecast as a result of the two repo-rate increases announced since the forecast in the February Budget, the minister said as part of the process of developing the Medium Term Budget Policy Statement (MTBPS) — which will be released on October 24 — the National Treasury runs its macroeconomic model and develops a new economic forecast for the medium-term expenditure framework period.
“Until that process is finalised and released in the MTBPS, the official economic forecast remains that published … in February.” — I-Net Bridge