The South African Reserve Bank (SARB) is very careful and considered in its approach to interest rates, the bank’s deputy governor Gill Marcus said on Thursday.
She warned, however, that if the central bank did not act against rising inflation the impact on the economy could be enormous in the long run.
”If you don’t act, the price you will pay later could be far more considerable (than the impact of higher interest rates now),” the deputy governor said at a breakfast meeting in Cape Town.
SARB Governor Tito Mboweni is widely expected to announce a further increase in rates after its monetary policy committee’s next policy meeting on June 12-13.
This will be the third rate hike this year.
Marcus said the SARB was facing an enormous challenge to keep inflation under control following the sharp fall in the value of the rand last year, and it was unlikely the target of between three and six percent for this year would be achieved.
However, the situation would be assessed at the end of the year, she said.
CPIX — the measure the bank uses to monitor inflation — climbed to 8,8% in April and looks set to rise even further, largely due to the rand’s almost 40% depreciation in 2001.
Marcus said the central bank carefully considered its approach to interest rates, and did not take a decision to increase rates lightly.
”It is a very carefully considered decision… we have had a very steady approach and have tried to create a predictable environment. But, in the end the responsibility of the central bank is to curb inflation,” she said.
On the rand, Marcus said the challenge was to move the currency into a much more predictable band, giving investors greater certainty in their business transactions.
”We don’t want these enormous spikes up and down.”
The local currency hit an all-time low against the US dollar of R13,85 in December 20 last year, but has been one of the world’s star performers in 2002, re-gaining around 18% of its value. – Sapa