ALISTER BULL, Johannesburg | Friday 6.00pm
THE Reserve Bank said on Friday it had discussed special circumstances with the government that would excuse it for failing to meet the country’s recently adopted inflation targets.
But it stressed that these so-called ”escape clauses” could only be invoked if the event was entirely beyond the Bank’s control and had been unforeseen — explicitly excluding the current high price of world oil.
”There have been letters between the Bank and the government stating that there would be certain circumstances which would make it impossible for the Bank to meet the targets,” chief economist Ernie van der Merwe said.
He was speaking after Bank Governor Tito Mboweni launched a stout defence of inflation targeting and said that the only reason it might consider easing the monetary reigns would be if the country was rocked by an external shock.
South African Finance Minister Trevor Manuel last month announced that the central bank would set interest rates to bring inflation to within a band of three to six percent by 2002, from current levels of seven percent.
Van der Merwe said that the circumstances that would justify overshooting would cover events like worldwide stock market turbulence or a natural disaster, like the floods which have devastated neighbouring Mozambique.
But higher oil prices had been evident long before Manuel’s February 23 announcement. As a result it could not be used as an excuse and would only become one if they posted another massive rise, said Van der Merwe.
Mboweni earlier defended the ruling African National Congress’s (ANC) policy mix of low inflation to lure long-term investment, that in turn will spur growth and job creation.
But in a debate on South African public radio he explained there would be circumstances that would warrant flexibility.
”Exogenous shocks could be a disturbing factor in monetary policy targeting and if (one) hit us so hard, we would have to factor that into how we achieve our targets. But we nonetheless must remain committed to achieving our targets,” he said.
The Bank has recently warned that higher world oil prices could generate short term pressure for domestic inflation, but it remained optimistic for the medium and longer term.
Its words jarred painfully with the rosier assumptions of foreign investors and sparked a sharp retracement in the rand and South African government bonds in early March which has still not been repaired. — Reuters