Minister of Finance Trevor Manuel on Wednesday strongly defended the policy of inflation targeting, and at the same time vehemently set his face against any variation of the target range — currently at 3% to 6%, which he described as “relatively very generous”.
Answering questions in the National Assembly, he told MPs: “Inflation targeting is an anchor of monetary policy. If every time you are in a storm you cut loose your anchor, you will have no control over how you will steer the ship, when you will steer the ship and what you will do when you pull that ship into safer waters.”
Manuel described inflation targeting as “the least worst” method of fighting inflation. He also said that allowing the Reserve Bank to use whatever instruments it thinks best to achieve price stability is a constitutional imperative.
“In the absence of evidence to the contrary, we shall continue to pursue that policy,” he concluded.
He said that inflation hits hardest at poor families. “Price stability is an object worth striving for,” he said. “It creates a lot more certainty for families and for trade unions.”
The minister said that inflation targeting is widely used around the world, and in the present circumstances almost every other country has breached its targets. Only Canada, he said, is at or near its target.
But he added that only Turkey has changed its target range, and Turkey’s experience of inflation is quite different from South Africa’s. Turkey had an average inflation rate of 85% for twenty years, he said.
Manuel pointed to the period between 2003 and 2007 as an idyllic period, when inflation was within the target range, and interest rates were lower than they had been since the early 1970s. “That must say something about the method,” he said. — I-Net Bridge