South African Reserve Bank Governor Tito Mboweni said on Thursday evening that inflation-targeting would be here “for many years” and economic policy is not going to change in South Africa as the foundations built up by President Thabo Mbeki, himself and Finance Minister Trevor Manuel were too strong to be weakened.
“One of the challenges for monetary policy in the current period is what monetary policy is supposed to be about. It is fundamentally the approach of central banks towards the cost of money. It is price stability — keeping inflation low,” said Mboweni.
“I think inflation-targeting is here for many years. Economic policy is not going to change and anyone trying to change it is inviting trouble,” he added.
Mboweni said keeping inflation low under whatever political circumstances is good for the working classes.
“Anyone who thinks high inflation is good for the poor must just look across the border. High inflation eats into the pockets of the poor. The rich can always hedge against inflation, but the poor are stuck,” he said.
“The second challenge for monetary policy is how to deal with exogenous factors,” he noted, referring to oil and food prices as problems that had to be dealt with. He added that one of the problems in the food area was the usage of crops for biofuel production.
“The food price is a challenge. Some say we should re-introduce food-price controls — my answer is only fools will want to do that. We are not going back to the days of the old maize boards,” he said.
“Some say we must introduce petrol-price subsidies — but honestly, do we want to that? Once you introduce a subsidy it is very difficult to take it away,” emphasised Mboweni.
He added that law and order were very important, referring to problems that arose from things like informal trading.
“The next challenge is the current account on the balance of payments,” he added.
“Then we have a consumer expenditure challenge, which brings about pressure on aggregate demand,” concluded Mboweni. — I-Net Bridge