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Mboweni: Tighten belts further
11/04/2008 00:08 - (SA)
Pretoria - The SA Reserve Bank has hiked the repo rate by 50 basis points to 11.50 percent, it said on Thursday.
SARB governor Tito Mboweni announced the decision of the bank's Monetary Policy Committee two-day meeting at a press briefing in Pretoria.
This would see commercial banks raise the prime interest rate to 15%.
"There are still considerable risks to the inflation outlook and it is evident that inflation has become more generalised," Mboweni said.
He said the committee believed that inflation would peak just bellow 9.5% in the first quarter of 2008 and then return into the bank's inflation target of three to six percent in the last quarter of 2009.
This however did not factor in electricity price rises, which the bank considers the most serious risk to the inflation outlook.
"The scenario is bad, it is not good at all," Mboweni said about the effect a further 53% hike, as proposed by Eskom, would have on inflation.
He said the National Energy Regulator, that has to consider Eskom's request, has written to the Reserve Bank to ask what its view was.
Inflation battle will be 'long and hard'
"We will inform the regulator about the possible impact on inflation of those proposed changes.
"We are not saying Eskom is not entitled to make their request, they are clearly entitled, there is a national emergency before us which has to be tackled, but maybe there are other ways to deal with it," Mboweni said.
He said should Eskom's request be granted, the battle with inflation would be "long and hard".
"We'll have to punch more holes into our belts so that we can tighten it."
Inflation targeting required a co-ordinated approach by the authorities to fight inflation.
"You can have a situation where people consider any levies or extra fuel taxes and things like that, but do not factor in the possible impact on inflation and the inflation target.
"There is a greater role that has to be played by administered prices, people have the responsibility, this is not the task of the central bank alone," he said.
He said decisions that made the reaching of the inflation target difficult would force the bank's hand on rates.
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