Mboweni, Gordhan getting on

Pretoria - South African Reserve Bank (Sarb) governor Tito Mboweni met with new finance minister, Pravin Gordhan, on Thursday for lunch and says the meeting went very well and it augurs well for a good relationship going forward.

Mboweni said he introduced Gordhan to senior management of the Bank, but that no mention was made of negotiations around inflation targeting - a recent hot topic in the press.

"He did not talk about that, but I did not ask," said Mboweni.

"I had a very good meeting with the minister - he is someone I have known for many years. It augurs very well for the relationship," said Mboweni.

Mboweni also said he had gone through manifestos of all parties in parliament and noted the ANC manifesto did not even mention inflation targeting.

"Low inflation is good for everybody," said Mboweni. He said those in favour of low inflation must also "rally the forces" to defend it as it seemed like inflation targeting was now being used as a "political enemy".

"But we must give the new administration time to settle down. Let's not hurry them into making all kinds of commitments," said Mboweni.

MPC member Brian Kahn said that in the current economic crisis the focus in industrialized countries is not so much on inflation as inflation is low and they are well within their targets.

Kahn said while monetary policy could be more accommodative in the current environment, he did see any contradiction between providing stimulus and inflation targeting.

Mboweni noted that buying power needed to remain constant for poorer people living off weekly wages or salaries and so higher inflation was not good as it eroded their buying power.

Added Mboweni: "There is no central bank in the world that prides itself on achieving higher inflation - it doesn't exist. Whether there is an inflation targeting mandate or not, they strive to achieve price stability - which is low and sustainable levels of inflation."

"In that context central banks can make a positive contribution to growth and jobs stimulation," he said.

Mboweni said monetary accommodation on its own does not guarantee high economic growth and employment.

"There has to be a coming together of a number of policy measures," he said, noting for instance that even rates at 0% would not help an industrial hub if they kept importing from overseas. He said there would be no guarantee this hub would take off simply because rates were low.

- I-Net Bridge