Central banks would pursue low inflation regardless of whether they had an inflation target or not, South Africa’s central bank Governor Tito Mboweni said on Friday.
South Africa’s government is under pressure from trade union allies to scrap inflation targets that they say have led to overly tight monetary policy, hurting the poor.
The demand has raised concern among some investors worried about a shift to more leftist economic policy.
”I have been in central banking for 11 years and I have come to the conclusion that it doesn’t really matter if you have an explicit inflation target or you don’t,” he said at a central bank seminar in Magoebaskloof, about 300km north of Johannesburg.
”The fact of the matter is that any central bank worthy of its mandate will pursue low inflation anyway.”
The Congress of South African Trade Unions (Cosatu) has become increasing vocal in demands for looser fiscal and monetary policy, and unions have threatened strikes if interest rates are not cut more.
They are particularly critical of inflation targeting, which the central bank has loosely followed.
A Cosatu official said on Thursday the federation would not support Mboweni serving another term as governor, although it was unclear if this is its official position.
The Reserve Bank targets consumer inflation at between 3% and 6% and raised its key repo lending rate by five percentage points in the two years until June 2008 to try tame inflation that peaked at 13,6% last year.
It has cut the repo by 450 basis points to 7,5% since December, though, to try boost flagging economic growth despite inflation remaining outside the band.
Headline CPI stood at 8,4% in April.
Mboweni — whose second five-year contract ends in August — said last week, after announcing the latest 100 basis point cut, that it may now be time to pause.
The economy dipped into its first recession in nearly two decades in the first quarter of this year, and job losses are on the rise, particularly in manufacturing and mining. — Reuters