Johannesburg - Finance Minister Trevor Manuel on Wednesday defended the policy of targeting inflation and said he hoped the new government would stick with the policy.
"Inflation targeting is premised on one thing, that price stability is in the interest of people with fixed income," Manuel told black business professionals at an event organised by the ruling ANC ahead of the April 22 national elections.
He said inflation erodes buying power so price stability is in the interest of the poor.
The central bank targets inflation between 3 and 6%, but it has been outside that band since April 2007.
ANC allies Cosatu and the South African Communist Party have said strict adherence to inflation targeting has led to the central bank raising interest rates by 500 basis points between June 2006 and June 2008, hurting the poor and job creation.
The allies would like to see the inflation target band moved upwards and the bank's mandate expanded to include economic growth and job creation.
Manuel said raising interest rates was one way of trying to achieve price stability.
"There aren't many ways to get (price stability). ... You can target the exchange rate or the interest rate to achieve it but in a country like ours that is a challenge."
"The MPC pushed up rates and government said stop spending ... (but) the rate of credit was down after 8 rate hikes. Nowhere in the world do consumers behave the way we do."
Manuel said he hoped the new administration after the elections would maintain the policy.
"I don't know what the incoming government will do but I hope they will take the lives of working people seriously to desire price stability, he said.
Mining and Zimbabwe
Manuel also said the domestic economy needed to lessen its dependence on commodities.
"We must diversify. But that is up to the entrepreneurs. Unfortunately governments are bad at producing entrepreneurs," Manuel said.
He said SA, which has the largest platinum deposits, had "not progressed much" beyond commodity exports.
Thousand of jobs in the mining industry are on the line as a downturn in the global economy has slashed demand for SA metal exports and as prices have declined.
On Zimbabwe, Manuel said the northern neighbour's economic recovery was crucial to the region and SA was talking to developed countries to help the struggling country.
"We are not a bank, we are poor. Part of what we are doing is speaking to wealthy countries and getting them to help," he said, citing Australia, Norway and the UK.
"We also need to stimulate the Zimbabwe economy and get the farmers to produce so we can get a significant improvement in the quality of the lives of the people."
Zimbambwe's economic decline has been highlighted by the highest inflation rate in the world and a shortage of basic goods.
A new unity government with President Robert Mugabe and his long-time foe Morgan Tsvangirai was formed last month, but some analysts say Zimbabwe will struggle to attract much-needed aid as long as Mugabe is still part of government.
- Reuters