Thailand, Indonesia and India have all made bullish noises of late, suggesting they may raise rates in the near future.
Indonesia’s central bank governor said today that it remained vigilant against rising inflationary pressures, which is good to know from a bank that has been keeping at least one eye firmly on growth. Consumer price inflation rose to 6.96 per cent in the year to December, against a 2011 target of 5 per cent +/- 1 per cent. The central bank has kept rates at their post-crisis low of 6.5 per cent to drive growth via commercial loans, Reuters reports. The IMF has called on the country to raise rates, which recently cut import duties on food to try to dampen price rises.
India is expected to raise rates next Tuesday, January 25. A “vast majority” of
Say what you will of the dizzying rise of South Africa’s rand, it has certainly helped to restrain inflation by keeping a lid on import prices. Consumer price inflation – which was over 10 per cent in late 2008 – has been running towards the bottom of the Reserve Bank’s target range, 3 to 6 per cent.
But data released this week suggest that inflationary pressures may be starting to build again – and that they could return with a vengeance when the currency weakens. At 6.2 per cent, November’s producer price inflation figure, released on Wednesday, surprised on the upside. So did the previous day’s consumer price inflation number of 3.6 per cent.
A strengthening currency and lower-than-expected inflation have prompted the Reserve Bank of South Africa to cut its repo rate to 5.5 per cent, effective November 19. “The domestic growth outlook remains subdued and below-trend growth is expected to persist,” said the Bank.
Consumer price inflation fell to 3.2 per cent in September, lower than expected. Prices are forecast to rise at an average 4.3, 4.3 and 4.8 per cent for 2010, 2011 and 2012. The inflation target is 3 to 6 per cent. On capital flows, the Bank cited difficulties arising from the Fed’s stimulus programme:
The Reserve Bank of South Africa is to stimulate its “somewhat fragile recovery”, after falling inflation gave the central bank room for manoeuvre.
Neighbours Namibia and Botswana have kept their main rates on hold today. Namibia has kept its repurchase rate at 7 per cent for the fourth consecutive month, while Botswana has kept its main lending rate at 10 per cent. Namibia and Botswana neighbour South Africa, the continent’s largest economy, and Namibia generally follows South African monetary policy. South Africa kept its rate at 7 per cent for the fourth month, on January 26.
Inflation in all three countries is at similar levels, albeit in different directions. South African inflation ran at 6.2 per cent in January, above the 3-6 per cent range for the second month, but falling toward it from December’s level of 6.3 per cent. Inflation in Namibia – also above target but slowing – is currently about 6.3 per cent. Botswana has just exceeded its target range of 3-6 per cent, with inflation rising to 6.1 per cent in January.
South Africa’s finance minister has announced a significant shift in central bank policy in a radio interview. His comments will raise more questions about the bank’s independence.
The South African Reserve Bank will adopt a flexible approach to inflation. The bank will be allowed ‘temporary deviations’ from its target of 3 – 6 per cent in the pursuit of growth, reports Business Week.”[Inflation will not be] the sole focus of what the bank does,” said Finance Minister Pravin Gordhan. “We’re very mindful of growth.”
Daniel Mminele, Deputy Governor of the South African Reserve Bank, today strongly defended its inflation targeting policy, the day after the Treasury announced a review of the scheme.
As South Africa’s economy has suffered the fallout from the global recession – the economy was hit with a whopping 7.4 per cent annualised decline in the first quarter of 2009, though it has since returned to growth and struggles with unemployment rates well in excess of 20 per cent – critics have called for the central bank’s mandate to be widened to include growth and unemployment.
Comments from South Africa’s central bank governor reveal fierce disagreement among board members on whether to hold or cut the repo rate.
Governor Gill Marcus said:”It was not a unanimous decision. There were very strong views in terms of an interest rate cut. At the end we agreed that in this point of time, the prevailing view was to hold. There was no discussion of an interest rate increase.”
Debate on the nationalisation of the South African central bank has been reignited after the head of the ANC submitted a document questioning the bank’s current ownership, raising fears of higher inflation.
ANC Secretary-General Gwede Mantashe asked: “Why have we been reluctant to even open the discussion on the role of the state in the banking industry? [We should also ask] why the South African Reserve Bank is one of less than five central banks in private hands in the world.”
A change to state ownership of the shareholder-owned bank could mean higher inflation. The left has complained that the bank focuses too narrowly on maintaining low inflation. They want policymakers to consider employment and growth when setting interest rates.