South African Reserve Bank Governor Tito Mboweni sent a strong signal on Thursday that the next move in interest rates would be upwards, the Reuters website reported.
It quoted him as saying monetary policy ”must not fall behind” the inflation curve.
Mboweni highlighted the risk of second-round inflation effects from rising oil prices, and noted that food prices are also likely to increase as a result of drought.
”We must not fall behind the curve like we did in 2001. We were behind the curve; we can’t afford this time to be behind,” Mboweni told analysts at a Reuters Economist of the Year breakfast.
Inflation started rising in 2001 as the rand depreciated, but the central bank did not start pushing up interest rates until January 2002.
At a two-day policy meeting last week, the bank left its key repo rate unchanged at 7%, but warned that the inflation outlook had deteriorated, largely because of high oil prices.
According to Reuters, Mboweni said there had been intense debate at last week’s policy meeting.
To underline the point that the time for easing has passed globally, he said he had told the monetary policy committee (MPC) that if anyone argued for a rate cut, he would strip.
”On the lighter side, I told them as I opened the meeting that if any one of them was going to argue for an interest-rate cut at the MPC meeting, I was going to take off my clothes and stand on the table,” Mboweni said.
”I think the spectre of that persuaded many of them not to consider an argument to cut rates.”
Mboweni said the issue of whether rising domestic inflation is a result of the so-called ”first-round” or ”second-round” effect of high global oil prices is largely academic.
”If you can see the first indication of inflation picking up on the occasion of high oil prices, surely at some point second-round effects will come in,” he said.
Mboweni expressed concern over the impact of a regional drought on domestic food prices, which are a big component of consumer inflation less mortgage costs (CPIX).
”Food-price inflation has been low … but I have my doubts that it will continue the way it is.”
The central bank uses CPIX to determine its inflation target, which has been between 3% and 6% for this year and the next.
The annual increase in CPIX has been inside its targeted range for two years but quickened to 4,8% in August from 4,2% in July, its fastest since June last year, Reuters reported. — Sapa