Mboweni: Inflation moderation to continue
September 17, 2009
South Africa's consumer inflation should continue moderating but the pace of decline may be constrained by high electricity price increases and above-inflation wage settlements, central bank Governor Tito Mboweni said on Thursday.
He said at the bank's annual general meeting the domestic economy looked set to recover slightly in the months ahead, while Reserve Bank forecasts consistently showed inflation back inside the 3 to 6 percent target range over a "reasonable time horizon".
The central bank has cut its repo lending rate by 5 percentage points to 7 percent since December to try and spur the economy out of recession, despite inflation remaining outside the band. It stood at 6.7 percent year-on-year in July.
Analysts expect rates to now remain steady.
Mboweni said at his final annual general meeting, before handing over to successor Gill Marcus in November, the central bank's response to the country's first recession in 17 years and a global downturn had been hampered by upside risks to inflation.
A firmer rand, low global inflation, a wide domestic output gap and soft household spending would help cool inflation and there were also signs that the pace of moderation in food price inflation may be accelerating.
He added that the pace of accumulation of foreign reserves had slowed due to the financial market turmoil, and that further accumulation would be constrained by currency market volatility, the level of global risk aversion and the cost of sterilisation of holdings.
The slow pace of reserves accumulation comes despite the rand being strong and levels that Mboweni last week said was "overdone". - Reuters
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