6 August 2008
South Africa must continue to employ forward-looking inflation targeting in order to deal with current inflationary pressures, says South African Reserve Bank (SARB) Governor Tito Mboweni.
“We are better off with inflation targeting for the moment so let us stick with it,” Mboweni told reporters and students at the University of Witwatersrand in Johannesburg on Tuesday.
He said that the mandate of the central bank was to target inflation and not to focus on economic growth as part of a dual mandate, which, for example, the United States Federal Reserve employed.
“Even if the government had not specified a mandate for the central bank, the SARB would still be pursuing low inflation. I do not know a central bank which isn’t pursuing low inflation [no matter what their mandate is],” he said.
Mboweni highlighted that the SARB monetary policy would continue to try to rein in inflation through a forward looking system of inflation targeting. While there was a fair amount of agreement on the goals being pursued, an array of opinions existed on the best way in which to achieve these goals, he said.
Inflation targeting, Mboweni said, enhanced cooperation and coordination between the government and the central bank, adding that inflation targeting was dependent on government playing their part.
He explained that the government cooperated with the central bank through minimising its account deficit, and by keeping municipal, electricity and public health care tariffs at appropriate levels.
Since 2006, the SARB’s Monetary Policy Committee has announced 10 interest rate hikes – a total raise in the interest rate of 5% – in an effort to halt ever-rising consumer inflation, which topped 11.6% in June 2008.
The inflation rate breached the Reserve Bank’s 3% – 6% target band for the 15th time in June 2008.
All eyes will be on the MPC in the coming two weeks, to see whether the committee will leave rates unchanged or even decrease rates, after better than expected producer inflation figures for June 2008.