Experts positive on revisions to inflation target
May 14, 2009
Revisions to the Reserve Bank's inflation targeting mandate may boost demand for the country's assets, as lower borrowing costs help spur an economic recovery, according to Commerzbank.
"An adjustment to a higher inflation target would allow the central bank to cut interest rates more aggressively to accommodate a quicker path to economic recovery," Luis Costa, an emerging markets strategist at Commerzbank, said yesterday. "Rate cuts would be positive for growth and bonds" and attract funds inflows.
Minister of Finance Pravin Gordhan said he would "engage" with labour unions that have asked for the central bank's inflation targeting mandate to be revised. The central bank has been targeting a 3 percent to 6 percent inflation rate since 2000.
"If they relaxed rules or scrapped inflation targeting, it would help growth and stocks in the next two years," said Wayne McCurrie, a fund manager at RMB Asset Management.
The economy shrank 1.8 percent in the fourth quarter, the first contraction in more than a decade, after policy makers raised the key interest rate to a five-year high of 12 percent last year. The main rate has since been reduced by 3.5 percentage points to the lowest since December 2003 to revive the economy. The International Monetary Fund predicts the economy will shrink by 0.3 percent this year.
"Globally, there is less emphasis on inflation and more on growth, so South Africa wouldn't be out of line if it revisited its inflation target," said Joseph Rohm, a fund manager at T Row Price International. - Bloomberg
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