South African Reserve Bank Governor Tito Mboweni has cautioned that the long period of lower interest rates (monetary policy accommodation) may be coming to an end, despite the current level of inflation being within the target range.
Addressing Parliament’s portfolio committee on finance on Friday, Mboweni said it is clear that inflationary pressures are building within the South African economy.
“We now see headline consumer inflation [CPI] and headline consumer inflation less mortgage-rate changes [CPIX] on the increase — this means that one doesn’t need to be a sangoma to see there are some red lights in the distance, indicating that the period of monetary accommodation might be coming to an end,” he said.
“I don’t want to spoil the party, or spoil Christmas, but I am just saying that given inflationary pressures, it is most probably inevitable that the monetary authorities might remove the monetary stimulus that is there.”
It is important to note, he said, that household debt as a percentage of household income has risen to 61% to 62%, indicating that given the low interest-rate environment, households have been keen to turn to debt to finance all categories of spending.
South Africa’s “larger than usual” current-account deficit, however, is not of concern.
“There are no red lights flashing that South Africa will experience a balance-of-payments crisis,” he told MPs. “Despite the larger-than-usual current-account deficit, capital inflows have been sufficient to cover this.”
One of the biggest threats to the world economy currently is the high oil price, he stated, although it is not a sharp price spike as occurred in the 1970s, but a “consistent, stubborn rise”.
“We must still be very, very worried about the oil price and its impact on inflation,” the governor said.
He pointed out that the current level of economic growth in South Africa — 4,8% in the second quarter of 2005 — is a “very aggressive” rate and one with which people should be “pleased”.
“As government tries to intervene to increase growth further, one mustn’t think that this quest is based on any notion that growth rate is miserable,” he observed.
“Rather, one should be pleased with the current rate. The second-quarter improvement in employment of around 84 000 is testimony that as the economy grows more, jobs are created — therefore the importance of maintaining a stable and higher growth rate is clear.” — I-Net Bridge