OWN CORRESPONDENT, Johannesburg | Monday 10.15am.
THE Reserve Bank is warning that interest rates may have to rise, saying that if a recent surge in inflation continues it will be forced to alter monetary policy.
Reserve Bank governor Tito Mbowni said the bank is ”very concerned” about a sharp increase during April in both producer prices and its benchmark inflation measure known as CPI-X, saying it will closely monitor the trend.
”If these inflation pressures persist and make it impossible for us to be within our inflation target by 2002, we will have no option but to respond the way central banks respond — by changing monetary policy,” Mboweni told the media on Saturday.
”We will do everything in our power to meet the [inflation] target. It is cast in stone,” he said.
Producer prices jumped by 10,1% in the year to April — the biggest increase for nearly five years — while CPI-X rose by 7,8%. The bank aims to get CPI-X, which strips out the effect of changes in mortgage rates, down to between 3% and 6% by the end of 2002.
”I think the fact that he is issuing the warning makes the possibility that the bank will act on it high. It increases the risk that rates might rise sooner rather than later if the current situation persists,” PSG economist Noelani King said.
Mboweni also said he wants the public to be aware of mounting inflation pressures and reduce their debt in case they are taken by surprise by possible changes in monetary policy in the future.
Economists are still divided on whether the next move in interest rates — which have fallen steadily since 1998 — will be up or down, but they all agree the risk of a hike later in 2000 is rising.
The key repo rate has been 11,75% since January 20, while commercial lending rates have fallen to 14,5% from more than 25% during the global emerging markets crisis in 1998. — Reuters