ELLIS MNYANDU, Cape Town | Monday 10.00am
SOUTH Africa’s newly introduced inflation target of three to 6% will not hurt economic growth over the next three years, says director-general of finance, Maria Ramos.
She said if South Africa had chosen a tighter band, it would have had to raise interest rates in the near-term in order to bring inflation into the range by 2002.
Ramos said the quest to lower inflation within the newly set band by 2002 would, however, not mar the country’s projected average growth rate of 3.4% through to 2003.
“The three-to-six percent is a band that between ourselves and the Reserve Bank…we feel comfortable can be achieved without jeopardising growth for the South African economy over the next three years,” she said.
Currently commercial bank interest rates stand at 14.5% after falling steadily from a 1998 peak of 25.5% seen during an emerging market currency crisis that threatened to swamp the rand.
“Had we gone for a much tighter band to start off with, we would have needed to see a tightening of monetary policy in the very short term to achieve a tighter band,” Ramos told parliament’s finance committee.
“Between ourselves and the Reserve Bank we believe the band and the period over which this band is to be achieved is entirely do-able and therefore credible,” she added.
Finance Minister Trevor Manuel announced the new target band in his 2000/01 budget last week, contrary to labour and business calls for a higher range. The South African Chamber of Business had called for a target range of between five and eight percent.
The benchmark rate which will be used for the target is the consumer price index less interest rates on mortgage bonds, the so-called CPI-X, which in January rose 7.7% year-on-year, after 7.5% in December.
The ministry forecasts that this rate will fall to 6.6% in the 2000/01 fiscal year, 5.3% the following year and 4.5% in 2002/03.
South African headline CPI rose 2.6% year-on-year in January, while the closely watched core rate rose at an annual 8.1%.