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By unknown | Feb 01, 2008 | COMMENTS [ 0 ]

Robert Laing

Robert Laing

Households were spared yet another interest rate increase yesterday, but the central bank remains committed to bringing inflation back under 6 percent, Reserve Bank governor Tito Mboweni said.

Yesterday's vote by the Monetary Policy Committee was seen as a close call coming a day after Statistics South Africa reported inflation accelerated to 8,6 percent in December.

Inflation has relentlessly worsened since April despite the central bank's four attempts to slow it with interest rate increases last year.

Mboweni said there was only a 65 percent chance of bringing inflation back within the target band by the end of this year.

The committee viewed the evidence of a slowdown in South Africa's spending spree as sufficient to justify holding interest rates steady for now.

The Reserve Bank has forecast inflation is near its peak and will start to improve.

"This is if all things remain as they are," Mboweni said.

One thing that may worsen inflation is electricity prices coming in higher than the 14,2 percent increase Eskom negotiated with the national energy regulator.

According to the regulator, the full price increase will not be passed on to end users by municipalities.

Mboweni suspects the actual increase will be higher.

The committee's decision to hold interest rates steady was widely predicted by economists, who argued the economy was already too strained by Eskom's load shedding to afford higher borrowing costs.

Critics of government's decision to make inflation targeting the central bank's priority include recently elected ANC president Jacob Zuma.

"Our marching order is to keep inflation between 3 to 6 percent. That has not changed," Mboweni said.

"I receive my mandate from the government. I haven't heard anything from the government that seeks to change the mandate of the Bank.

"So as far as I'm concerned the mandate remains the same. The day the government tells me something different, I'll be in a position to respond to that question.

"The ANC is a big organisation with many members. Some talk a lot of nonsense, others talk a lot of things that don't make any sense at all, same way as the DA and IFP will say anything. So at the central bank we take our mandate from the government, not from whoever is talking from some corner."


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