Sarb has 'multiple mandates'

Magoebaskloof - The SA Reserve Bank does not restrict itself to a single mandate - the control of inflation - according to the Governor Tito Mboweni.

He said on Friday during a strategy planning session of the bank's monetary policy committee (MPC) that the committee discusses many other issues when deciding on the repo rate figure. And that includes output stability and unemployment, he said.

A number of the economists addressing the strategy session in Limpopo pointed out that other central banks have dual mandates, dealing with both inflation and output stability. Mboweni however argued that this was not so. They have multiple mandates, he said.

He also argued that every central bank targets inflation, even if they do not declare it. "They all pursue long and low inflation," he said. He added in surreptitious parenthesis " except the Bank of Zimbabwe."

He pointed out that although the European Central Bank does not have an expressed inflation target, in fact it aims at two percent inflation - although it does not declare it.

The experts at the strategy meeting heard a great deal of argument in favour of inflation targeting, including statistics that showed that those countries that pursued an announced inflation target had lower inflation rates. Khathu Todani from the bank also said that they had lower rates of volatility, and that output stability has also improved when compared to inflation non-targeting countries

After canvassing the recently published literature on the subject, Todani suggested that the proof that inflation targeting works may not be sufficient to convict beyond a reasonable doubt, but he insisted that the proof is there - although purely circumstantial.

Peter Sinclair from the university of Birmingham in the UK, quoting a paper written by another economist - Michael Woodford - suggested that the inflation targeting mechanism was perhaps too soft, and that there were no punishments for failing to meet the targets. He also proposed that the inflation target should be extended for a longer period; not set for a year, but measured over say five years.

- I-Net Bridge