Inflationary pressures pose a greater challenge to Southern Africa than global financial-market turmoil, South African Reserve Bank Governor Tito Mboweni said on Friday.
It was important that regional economies continued to pursue price stability through appropriate monetary policies.
”Inflationary pressures currently pose a greater challenge to the CMA [common monetary area] region’s economies than the international financial turmoil,” he said in a written copy of a speech in Namibia, posted on the Reserve Bank’s website.
”Equally important, therefore, is the assurance that we will continue to protect the purchasing power of the money in your pocket through appropriate monetary policies, i.e. the pursuit of price stability.”
The common monetary area includes South Africa and neighbours Namibia, Swaziland and Lesotho, which use the rand as a peg for their currencies.
Inflation continues to accelerate in the region, with the dominant South African economy’s targeted CPIX (consumer inflation less mortgage costs) reaching a five-year high of 9,4% year-on-year in February, the 11th month it has been outside the bank’s 3% to 6% band.
The Reserve Bank left the country’s repo lending rate at 11% at the January monetary policy meeting, but the strong inflation has raised chances of a hike next week, despite signs the economy is slowing under the weight of previous rate increases.
The repo rate was raised by 400 basis points between June 2006 and December last year to try tame inflation and robust consumer spending.
Mboweni last week warned consumers of tough times ahead, and urged South Africans to ”tighten their belts”.
A global credit crisis has hit advanced economies and sparked financial-market turmoil, but has so far had less of an impact in emerging markets.
Mboweni said despite the spill-over effects from the crisis, CMA economies had so far remained buoyant due to sound macroeconomic policies and structural reforms.
”While one should not underestimate the difficulty in the detail of doing so, the financial system in the CMA has weathered many storms successfully and there is no reason to doubt that it will continue to do so.”
But central banks should be on guard for a deterioration in local conditions.
”Central bankers will also have to continue to be vigilant as the United States credit turmoil unfolds, and if confronted by deterioration in local financial-market conditions, stand ready to do what is required to facilitate the continuation of orderly trade,” he said.
South Africa’s economy has expanded by about 5% a year for the past four years but is widely expected to expand by about 4% in 2008, due to slower global growth, lower domestic demand and a local power shortage.
Mboweni said regional economies that exported to countries affected by the credit problems would likely see slower growth.
However, direct impact from the crisis would be limited due to the region’s small exposure to the subprime and structured markets, he said, adding that levels of bad debt remained moderate. — Reuters