Mboweni explains inflation assumptions
May 21, 2009
Reserve Bank Governor Tito Mboweni said last night that the monetary policy committee forecast that the rand would depreciate by 4.25 percent in 2009, the first time the bank has given details of the assumptions used in its inflation model.
The committee also assumed at its April meeting that oil prices would average $50 (R425) a barrel this year and $55 in 2010, Mboweni said. It estimated that the real effective exchange rate of the rand would remain unchanged next year, he added.
The Reserve Bank has cut its benchmark interest rate four times since December, pushing it to 8.5 percent to spur consumer spending as the economy heads for its first recession in 17 years. The bank aims to keep inflation, which reached 8.5 percent in March, within a range of 3 percent to 6 percent.
"This is the first time that I have talked about these assumptions in this kind of detail," Mboweni said.
He left out the reference to the rand when he delivered his speech at the function hosted by Sake24 newspaper. The rand has gained 14 percent against the dollar so far this year.
The monetary policy committee said at its meeting on April 30 that inflation would average 5.4 percent in the final quarter of 2010, without saying whether it would meet its target this year.
It also estimated at its April meeting that the economies of South Africa's trading partners would contract 2 percent in 2009 and expand 1.5 percent in 2010, Mboweni said. The committee assumed that so-called administered prices, such as electricity and other government-controlled costs, would rise 2 percent this year and 9.75 percent in 2010, he added.
Mboweni said that commercial banks were not necessarily passing on the benefits of lower interest rates to their customers, the third time since May 14 that the governor has raised this concern.
He plans to meet with chief executive officers of the country's main banks tomorrow to discuss lowering the interest rates they charge customers, he said yesterday.
"It also appears that banks are charging higher spreads relative to prime than was previously the case," Mboweni said. - Bloomberg
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