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Incl uding an escape clause in South Africa's inflation targeting framework was a mistake, Reserve Bank Governor Tito Mboweni said on Friday.

Briefing Parliament's finance committees, he said the issue was on the agenda for discussion by the technical sub-committee of the central bank and National Treasury.

"It (having an escape clause) really is a bad idea.

"If you are going to publicly say 'sorry folks, this inflation thing is too difficult, we are escaping' you are basically saying to people monetary policy is now relaxed."

One might as well, then, forget about inflation targeting, as no-one would take it seriously, Mboweni said.

"We made a big mistake, and I think we shouldn't have these things called escape clauses.

"The central bank, in the conduct of its monetary policy, has to be flexible enough to take into account, from time to time, those factors over which it has no influence, but it shouldn't say so publicly," he said.

The SA Reserve Bank (SARB) is tasked by government to keep inflation between three and six percent, but can invoke an escape clause if external factors, such as rising oil prices, make meeting the band impossible.

Statistics SA earlier this month announced that year-on-year consumer price inflation excluding mortgage rates (CPIX) subsided to 11,3 percent in February from 11,8 percent in January. The SARB uses CPIX as an inflation barometer.

Mboweni hiked interest rates by four percent last year to temper inflation sparked largely by a sharp fall in the value of the rand in 2001.

The central bank missed the target in 2002, but inflation is expected to fall within the range by the fourth quarter of 2003, raising hopes of a rate cut later this year.

Mboweni said the United States-led war on Iraq was of concern for inflation, in that it could impact on the international price of crude oil.

While it was heartening that the Organisation of Petroleum Exporting Countries (OPEC) had given an assurance it would try maintain critical levels of supply to help keep prices under control, problems could arise should states outside Iraq be affected.

"If for some reason, and I hope it doesn't happen, the supply of goods are somehow interrupted and there is a shortage of supply in the oil market and the prices begin to shoot up, that will obviously affect us.

"From that point of view we are very very concerned," he said.

Crude oil prices dropped last week on hopes of a short war, but have risen again towards $30 a barrel as indications are the war might last longer than expected.

The governor said the increase in interest rates last year had helped to continue the trend towards lower household debt, and should inflation come down "at some point" the interest rate regime would change.

"So, there will be a regime change in interest rates as inflation comes down," Mboweni said - Sapa

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