MARIAM ISA AND OWN CORRESPONDENT, Pretoria | Friday
SOUTH Africa’s central bank is keeping interest rates steady, in line with analysts’ expectations, saying domestic fundamentals for keeping inflation low remain favourable despite steep global oil prices.
Reserve Bank governor Tito Mboweni reassured jittery markets by saying he was confident the bank would meet its newly introduced 3 to 6% inflation target, which is seen as a key measure of the country’s financial credibility, by 2002.
”We are operating from the point of view that we are going to achieve our target,” Mboweni said.
The bank said domestically generated inflation had fallen since April 2000, but it would watch closely for upward pressure triggered by the weak rand and high oil prices.
The Reserve Bank’s chief economist Ernie van der Merwe said most of the rise in inflation during the past year could be blamed on the impact of rising oil prices and increases in some food costs after regional floods.
”We don’t see any secondary effects on other prices,” he said, adding that nominal unit labour costs were falling sharply, which boded well for South Africa’s inflation outlook.
Other factors which supported the benign outlook included surplus production capacity in the economy, no sign of excessive growth in demand, and sluggish growth in both money supply and credit expansion, the bank said in a statement.
The bank’s targeted measure of inflation known as CPIX, which strips out the effect of high oil prices, rose by 8.2% in the year to August. Most economists expect the index to peak in October as domestic fuel prices continue to climb.
But they are divided on the outlook for interest rates, with some predicting a hike early next year to ensure that the inflation target is met, but a majority forecasting another cut to boost flagging growth.
”We still take the view that conditions will be such that an easing of interest rates can be anticipated in the second quarter, although it will probably only be marginal…around half a percentage point,” Investec economist Dave Galloway said. – Reuters