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SA must continue with inflation targeting - Mboweni

by Michael Appel
on 05 Aug 2008
BuaNews Online
BuaNews Online

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," Mr Mboweni told reporters and students at the University of Witwatersrand (Wits), in Johannesburg on Tuesday.

The governor highlighted that the mandate of the central bank is to target inflation and not to focus on economic growth as part of a dual mandate, which the United States Federal Reserve employs, for example.

"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.

The governor highlighted that the SARB monetary policy will continue to try to rein in inflation through a forward looking system of inflation targeting.

While there is a fair amount of agreement on the goals being pursued, there does exist an array of opinions on the best way in which to achieve these goals, he said.

Inflation targeting, Mr Mboweni highlighted, enhances cooperation and coordination between the government and the central bank, adding that inflation targeting is dependent on government playing their part.

Government cooperated with the central bank, he said, through minimising its account deficit, and by keeping municipal, electricity and public health care tariffs at appropriate levels.

The SARB's Monetary Policy Committee (MPC) has since 2006 announced 10 interest rate hikes in an effort to halt the ever-rising interest rate which topped 11.6 percent in June 2008.

The MPC has raised the interest rate 5 percent cumulatively since the inflationary cycle began in June 2006.

The inflation rate breached the 3 -6 percent target band for the 15th time in June 2008.

All eyes will be on the MPC in the coming two weeks as South Africans wait in anticipation to see whether the committee will leave rates unchanged or even decrease rates, after better than expected Producer Price Index (PPI) figures for June 2008. - BuaNews

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