Mboweni confident of keeping inflation in check
November 23, 2005
Johannesburg - The inflation outlook has deteriorated moderately, with CPIX now seen at the upper end of the 3-6 percent range in the first quarter of 2006, South African Reserve Bank Governor Tito Mboweni said on Tuesday.
Nonetheless, inflation should remain within target range over the forecast period. This was, among others, dependent on the future path of oil prices, and developments in the exchange rate of the rand and food prices, he added.
"Inflation expectations, as can be expected, have deteriorated moderately, but on the whole still point to CPIX remaining within target over the next three years. The Bank needs to guard against inflation expectations worsening further and becoming entrenched," Mboweni told the Economists Fourth Business Roundtable with the government.
Economic growth, he added, should remain robust, despite the fact that oil prices would most likely have a dampening effect on growth. The manufacturing sector appeared to have weathered a relatively strong rand quite well, while global economic conditions were such that export growth should be maintained at a healthy pace.
"Both consumer and business confidence should remain high, with the factors supporting consumer confidence in 2005 still effective in 2006 - healthy disposable income, structural changes in the economy, and still low nominal interest rates."
"Money supply and credit extension should witness a mild moderation, alongside growth in the housing market. We have noted signs of cooling off already."
"Expectations of interest rate increases are likely to dampen credit demand (mortgage financing) somewhat. However, certain country-specific factors are likely to support still high and positive rates of growth, namely, the participation of non-resident buyers in the local market, the emergence of a new middle class, strong consumer demand, and a general catching up in the local housing market with international developments," Mboweni stated.
"The balance of payments may witness a mild deterioration, however, capital inflows, both portfolio and foreign direct investment, should be sufficient to finance this.
"The Bank will continue to build its foreign exchange reserves, and purchase foreign currency at opportune times in a manner that does not destabilise the financial markets," he added. - I-Net Bridge
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