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Manuel dismisses currency peg suggestion

Finance Minister Trevor Manuel rejected a suggestion made in Parliament on Friday that South Africa look to fix its exchange rate rather than aggressively target inflation.

A common factor among countries that had experienced a deep financial crisis — such as Turkey, Argentina and Thailand ? was they had pegged their currencies, he said in the National Assembly.

”(I) would rather deal with a situation we’re dealing with now, than be faced with the need to go cap in hand to (the International Monetary Fund in) Washington to borrow huge sums of money.”

Manuel was responding to comments, by the Inkatha Freedom Party’s Hennie Bekker, on the South African Reserve Bank’s (SARB) decision to, again, increase interest rates.

SARB governor Tito Mboweni announced a one percentage point rise in the central bank’s lending rate on Thursday, prompting all major commercial banks to raise their prime rates to 17%.

This is the fourth increase in interest rates this year, and follows concerns about rising inflation partly caused by a falling rand.

Speaking during debate on the Collective Investment Schemes Amendment Bill, Bekker said it was sad that just as the economy was ”coming right” the central bank had hiked the repo rate. He suggested the SARB not focus so intently on targeting inflation, but rather look at targeting lower interest rates, or protecting the exchange rate.

Speaking earlier, Deputy Finance Minister Mandisi Mpahlwa said it should not be forgotten that inflation impacted most on the poor.

He also said the SARB had, in the past, tried to target the exchange rate, but with little success. – Sapa

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