Mboweni considers 200bps hike

Johannesburg - South African Reserve Bank (SARB) governor Tito Mboweni said on Wednesday that the task of the central bank is to maintain inflation in the 3% to 6% target band, and with CPIX inflation now at 10.4% "drastic" measures are required. He said he and his colleagues had discussed the impact on the economy of raising by 200 basis points.

"This is way above the upper limit - you don't have to be a genius to tell interest rates have to tighten," he said.

Mboweni pointed that if food is excluded from the CPIX then it is above 8%.

"So you can't just blame food," he said.

He noted that it is also above 8% if petrol is excluded. And then if both were excluded inflation was now above the key 6% mark, indicating broad pressures.

Mboweni admitted that if a central bank misses its target for a prolonged period then it loses credibility.

His comments come on the day that CPIX inflation was reported to have outpaced the upper 6% inflation target for the thirteenth month running and is at the worst levels seen in five years at 10.4%.

The comments also come just two weeks ahead of the next rates decision [June 12] and are thus being monitored very closely by the markets.

The short end of the South African bond market, in particular, has become a moving target as conditions continue to deteriorate.

Mboweni was speaking at the Gordon Institute of Business Science and the event was held in conjunction with the Helen Suzman Foundation.

He concluded that things would get more difficult before they get better and that he feels things will only get better "after a lot of pain".

- I-Net Bridge,