OWN CORRESPONDENT, Pretoria | Tuesday 1.45pm.
THE South African central Reserve Bank is committed to controlling inflation and securing financial stability, new governor Tito Mboweni said on Tuesday in his first policy address.
Mboweni said the programme could be initiated only after consultation with various groups, including government, labour and business. He warned, however, that “inflation-targeting is no panacea but it should help to anchor inflation expectations and minimise the inevitable, but short-term, social and economic cost of achieving price stability.”
“Financial stability is a precondition for sustained economic growth and employment creation,” said Mboweni.
Addressing the media before his inaugural address, he said inflation-targetting could be introduced in the first quarter of next year, but “I would like to open a window to give us time in case we are not ready.”
Mboweni said he would hold discussions with Finance Minister Trevor Manuel, who has advocated a start early next year, on the mechanism for meeting inflation targets and on whether the Bank or the government will set the targets.
Under the scheme, the Reserve Bank would adjust monetary policy — and more specifically interest rates — to ensure that inflation targets are met. “We are not ready to announce now what the target is,” Mboweni said.
In his address to the Bank’s shareholders, Mboweni said an inflation-targetting agreement would have to be ratified by parliament before it could be implemented. Formal inflation-targetting will enhance transparency over monetary policy, he added, and allay some of the uncertainties created by the present framework, which he described as “eclectic”.
Mboweni also announced the establishment of a Monetary Policy Forum (MPF) to draw private business and labour into discussions on macroeconomic development and monetary policy issues. “We think it is important to keep South Africans talking, even on monetary policy issues, so that we involve the people who it affects,” he said, adding that the forum did not have to reach consensus.
Mboweni said a market-oriented strategy would be followed to achieve financial stability “because financial institutions and markets function best in the national interest if they are competitive, active and liquid, and if interest rates and exchange rates are flexible.”