South Africa’s central bank is willing to raise interest rates further if the inflation outlook worsens, the bank’s governor Tito Mboweni said on Thursday, urging consumers to cut debt.
But he offered a reprieve to commercial banks, saying the Reserve Bank would hold off on raising reserve requirements to give them more time to curb high lending.
The Reserve Bank last month kept its key repo rate unchanged at 9% after increasing rates by 200 basis points between June and December last year, citing a peak in CPIX inflation within the country’s 3% to 6% inflation target.
Since the February policy meeting the rand currency has depreciated by around four percent against the dollar, international oil prices have risen, and food prices have soared.
”We did indicate, after the last monetary policy committee meeting, that should the inflation outlook deteriorate we would be willing to adjust the stance,” Mboweni said on Thursday when asked if interest rates could increase again.
”It seemed to us, at that point [February], that the inflation outlook had improved somewhat.”
Mboweni warned consumers that now was a good time to cut household debt, which he described as being ”on the dangerous side” at 73 percent of disposable income.
”[Because] we don’t know when that pause [in rate hikes] might change,” he said in a speech to mark Consumer Rights Day.
Consumer spending, and in particular credit growth, remains high despite last year’s hikes and the central bank has stressed that it will continue to remain vigilant on expenditure.
‘Be careful’
Faster growth in Africa’s biggest economy has been mainly driven by a consumer spending boom over the past three years, but this has also added to inflationary pressures, pushing CPIX up towards the upper end of the target band.
Official data last month showed that annualised CPIX quickened to 5,3% in January, slightly above forecasts, after a 5% increase in December.
”In the past three years we have seen household consumption expenditure increasing at a very high rate. Household debt is on the dangerous side … we have to be careful in this country.”
But he added that despite the higher rates economic growth should remain at about 5% of gross domestic product.
The economy expanded by 5,6% in the fourth quarter of 2006, putting growth for the year at about 5%, just off the two-decade record of 5,1% for 2005.
Mboweni, who has described South Africa’s explosion of consumer credit as ”madness”, said the central bank would give commercial banks more time to adhere to a code of conduct on lending before adjusting their reserve requirements.
South Africa’s main commercial banks agreed earlier this month to tone down what has been described as aggressive marketing of credit to sometimes cash-strapped clients.
The move followed warnings from the central bank that it intended to raise mandatory cash requirements held by the Reserve Bank to curb high lending.
”They [banks] have adopted a code of good practice … I think we are going to give them some time to see if this works,” Mboweni said.
Private sector credit growth slowed to 24,83% year-on-year in January, easing further off October’s record 27,48%. – Reuters 2007