HomeBusiness DigestSA inflation to plummet to 3% - Mboweni

SA inflation to plummet to 3% – Mboweni

Ngoni Chanakira

WHILE Zimbabwe’s inflation rate continues to soar and is predicted to reach 1 000% by year-end, neighbouring South Africa’s Reserve Bank (SARB) governor, Tito Mboweni bol

dly says his country’s rate will nosedive to between 3% and 6%.

Zimbabwe is in a hyperinflationary environment with its inflation figure standing at 426,6%.

A shortage of bank notes has been triggered by skyrocketing inflation as retailers hike prices almost on a daily basis.

The Reserve Bank of Zimbabwe (RBZ) has been forced to introduce local traveller’s and bearer’s cheques in frantic moves to try and solve the financial chaos that has engulfed the nation. The RBZ also injected $1 000 notes into the system – the highest since Zimbabwe attained Independence in 1980.

Mboweni this week told journalists at the Cape Town Press Club that he expected inflation to fall within the 3% to 6% target range before year-end.

He said price stability, in the form of low inflation, remained the key objective of monetary policy in South Africa, and that the short-term interest rate “is adjusted exclusively for the achievement of this objective”.

In his speech, Mboweni said the SARB had been affected by changes around the world during the last five years.

He said among the developments, which impacted on SARB policy was the financial turbulence in a number of South East Asian economies in 1997/8.

“It became obvious during that period that sound policies, rather than crisis management, yield the best results in the long run,” Mboweni said. “The result is that this has been a guiding principle for the SARB in the implementation of policy over the past five years.”

Mboweni, the 2001 Reserve Bank governor of the year, has occasionally ruffled feathers in government, regularly clashing with President Thabo Mbeki on policy matters.

He has, however, managed to steer the country’s economy on a steady growth path with inflation averaging less than 10%. It currently stands at 5,7%.

Four policy issues have topped SARB’s agenda over the past five years.

The most important of these has been the adoption of an inflation target as the anchor for monetary policy.

Zimbabwe, on the other hand, has failed to grapple with soaring inflation.

The Minister of Finance and Economic Development, Herbert Murerwa, while presenting his $672 billion Supplementary Budget to parliament said inflation threatened to destroy the “very social fabric of the nation”.

Murerwa said to contain inflation, government needed to control money supply growth and skyrocketing public sector borrowing.

“Honourable members will recall that in my presentation of the 2003 Budget in November last year, I indicated the urgency of addressing the severe socio-economic challenges facing our country,” Murerwa told parliament.

“In particular, containing inflation remains central to reversing output decline, restoring business confidence, increasing foreign currency generation, encouraging savings, investment and employment creation.”

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