South African Reserve Bank (SARB) governor Tito Mboweni vowed on Tuesday to remain steadfast in the pursuit of the government’s inflation targets.
Briefing Parliament’s finance portfolio committee, he said the time frames built into the targets forced the bank to be conservative.
However, the SARB was confident inflation would fall within the 3%-6% range later this year.
Mboweni said CPIX — headline inflation minus mortgage costs — should decline to the mid-point of the target range — 4.5% — next year, all other things being equal.
”If all things go in the right direction, we should probably be at about the mid-point in 2004… if it does not go right we may be a bit above (the upper limit).”
The SARB has been tasked with bringing CPIX to between 3% and 6% by the end of 2003 and 2004.
The bank hiked interest rates by four percentage points last year in response to sharply rising prices, but cut the repo rate 1,5 percentage points earlier this month, as inflation moved lower.
CPIX was measured at 7,7% for May.
Mboweni agreed with a comment that the SARB was obsessed with meeting the target, saying it had had some ”bad experiences” in the past when the targets had not been met.
”I don’t want to be part of a failing exercise.
”Naturally, given that kind of situation, we are bound to be what central banks are supposed to be, i.e. conservative.”
He said the wording of the framework put the Bank into a ”bit of a straitjacket”, as it included a deadline as to when the band should be met.
It would have been easier if the task had merely been to keep inflation at below a particular rate.
”It forces you to be extremely conservative in your approach, because you do not want to be in a situation where year after year… you have to provide explanations as to why you failed.”
Mboweni warned members of Parliament that the current CPIX rate remained outside the target range.
”If the last figure is 7,7% then it means we are still 1,7% above the target, we must remember that,” he said.
SARB chief economist Ernie van der Merwe said CPIX should come within the target range during the third or fourth quarter of this year.
However, a number of trends remained a source for concern, including a rise in nominal unit labour costs and a sharp upturn in money supply figures in April, he said. – Sapa