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SA won’t veer from price-stability course 'just because it’s difficult'

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SA won’t veer from price-stability course 'just because it’s difficult'

Minister in The Presidency Trevor Manuel on inflation targeting. (14/7/2009) Cameraperson: Nicholas Boyd. Editing: Darlene Creamer.

14th July 2009

By: Terence Creamer
Creamer Media Editor

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The South African Constitution ultimately set the mandate for the South African Reserve Bank (SARB) to maintain price stability and this objective could not be abandoned simply because it was difficult to achieve, Minister in The Presidency Trevor Manuel asserted on Tuesday.

Speaking at the launch of the Medium Term Strategic Framework in Pretoria, Manuel said that this constitutional "imperative" was not a "nice to have", and had been pursued domestically through inflation targeting, which he argued had been applied in a reasonable and flexible manner by the central bank.

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Despite inflation remaining outside the target range of 3% to 6%, the bank had been careful not to pursue the target in a way that would deepen the recession.

"But the objective remains: you don't abandon the approach to price stability because it is difficult to attain," Manuel averred, adding government would not ask the SARB to "get back into the target come hell or high water".

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He added that he was "satisfied" that the bank had demonstrated a "reasonable mind and a fair amount of flexibility".

The former Finance Minister's comments come amidst ongoing unhappiness among the ruling party's left-leaning allies about whether the policy remained appropriate in a context where the country had descended into its first recession in 17 years. These critics argue that greater focus should be given to the issue of employment and growth.

Similar reservations were raised recently by Nobel prize-winning economist Joseph Stiglitz, who argued last week that the "rigid" application of inflation targeting by some central banks had helped precipitate the current economic meltdown.

However, Manuel's statement gelled with one made recently by new Finance Minister Pravin Gordhan, who indicated that South Africa remained committed to the inflation-targeting policy.

Gordhan told lawmakers that the policy provided a clear "nominal anchor" for monetary policy and ensured that the bank remained transparent about its goals and actions.

"Since inflation targeting was adopted in 2000, both the level and volatility of inflation has declined, while gross domestic product growth has also been stronger and less volatile than under previous monetary policy regimes," he said.

 

 

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