no compromise

South Africa's inflation target of 3percent to 6percent must stay, Finance Minister Trevor Manuel said yesterday, though price increases had rocketed way higher.

South Africa's inflation target of 3percent to 6percent must stay, Finance Minister Trevor Manuel said yesterday, though price increases had rocketed way higher.

"The present target of between 3percent and 6percent must be maintained," he said in response to a question in parliament.

"Price stability is an object worth striving for because it means there is more certainty for families, for trade unions, for investors."

CPIX inflation soared to 10,4percent year-on-year in April, prompting yet higher interest rates and sharp criticism from trade unions that have demanded the targets be scrapped or shifted higher.

Reserve Bank governor Tito Mboweni lifted the repo lending rate by another 50 basis points, or 5percentage points in increases since June 2006 to try and tame price pressures.

Manuel said inflation targeting was the "least worst" method to control prices and reiterated his concern that South Africans rely too much on credit to fund their spending.

"I'm saying that the evidence between 2003 and 2007 speaks for itself and speaks for the triedand-tested method which I'm saying is the least worst that the world now knows, namely inflation targeting," he said.

The central bank tamed a spiral in prices in 2002 through higher interest rates and kept CPIX, or consumer inflation minus mortgage costs, within the band for almost four years until high food and fuel costs drove it past 6percent in April last year.

Manuel said South Africans saved too little to sustain high growth.

"Too many South Africans live . on credit. Our savings ratios are low and therefore we live for today from tomorrow's income. And this means we are different from countries that have grown sustainably at higher rates, because they've always had higher savings rates," he said.

"Unless we can deal with that problem I think we will kind of snuff out prospects for the future."

Household debt rose to a record 78,2percent of disposable income in the first quarter.

Manuel said the Treasury wanted Eskom to be returned to financial health soon to prevent further electricity shortages.

The Treasury has agreed to lend Eskom R60billion over five years to help it fund a R350billion programme to boost capacity.

Manuel said Eskom's need to borrow R148billion should be "fairly easily" absorbed in capital markets because the government was significantly reducing its own borrowing.

The company did not plan any short-term foreign loans, so it would not affect South Africa's vulnerabilities. - Reuters

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