South Africa’s persistent pursuit to bring inflation down has helped the rand to recover, deputy SA Reserve Bank governor Ian Plenderleith said on Tuesday. He contended the inflation-targeting policy had done much to maintain confidence in the economy.
”This is particularly evident in the international markets, where confidence in the fundamentals of the economy had undoubtedly been a factor in the recovery of the rand.”
Confidence levels were underscored by the upgrades South Africa had received from international rating agencies, Plenderleith told businessmen in Johannesburg. Plenderleith, who took up his position with the bank in January, said his initial impressions of South Africa’s monetary operations were very positive.
He retired from the Bank of England last year after 37 years of service. At the reserve bank he is responsible for money and capital markets, and for international banking.
The most remarkable achievement of the South African economy was its continued growth in the past few years despite a global slowdown, he said.
”Looking ahead, the prospects are encouraging for the economy to continue to grow.”
The main reason for this was a coherent and responsible fiscal and monetary policy framework. South Africa was very much in the international forefront in the way it had tackled inflation. Plenderleith said inflation was the enemy of long-term sustainable economic development, weakening the capacity of the economy to achieve its growth potential.
High inflation tended to discourage savings and undermined the ability of people to plan their future personal finances on a prudent, long-term basis.
It was also to the disadvantage of the poor, and those living on a fixed income.
”Not for nothing has inflation been called a silent and invisible thief,” Plenderleith said.
There was not, in any meaningful sense, a trade-off between growth and low inflation.
He said last year’s interest rate increases were vital to counter major inflationary shocks to the economy.
The higher rates prevented the 2001 fall in the value of the rand and surging fuel and oil prices from generating a self-reinforcing cycle of rising inflation. Living with a somewhat higher inflation rate for a period in the hope that this would bring higher growth was not feasible.
”The reason is that low inflation is not an alternative to growth, but a necessary and essential precondition,” Plenderleith said. – Sapa