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Inflation a challenge for central bank

SA Reserve Bank

SA Reserve Bank

 

Pretoria – Head of Research at the South African Reserve Bank, Rashad Cassim, says rising inflation is a challenge for the central bank.

“It is the origin of emerging inflationary pressure that remains the most challenging for the Monetary Policy Committee [MPC],” said Cassim, who is also a member of the bank’s MPC.

Cassim said that the inflation targeting monetary policy framework was essentially forward looking and would be difficult to implement without the timely and accurate measurement of the Consumer Price Index (CPI).

As measured by the CPI, inflation rose to 5.9% year-on-year in February. In January, Statistics South Africa (Stats SA) data showed that CPI came in at 5.4% year-on-year.

The central bank targets inflation between 3% and 6%.

At the second MPC meeting in March, the bank said it expected inflation to temporarily breach the upper end of the target range in the third quarter of 2013, when it is expected to average 6.3% and then moderate to 5.2% in the fourth quarter.

A higher inflation leaves the Reserve Bank with less room to cut interest rates to boost economic activity.

The MPC kept the repo rate unchanged at 5% in March.

The MPC, said Cassim — who was speaking at the Reuters Economist of the Year 2013 ceremony — considered several matters when it held its meetings, including unemployment, the exchange rate and oil prices, among others.

“We focus on several important aspects in our assessment of the domestic economy. These include efforts to elucidate the complex nature of the financial markets and financial intermediation on economic activity and more importantly, how this relates to investor sentiment and consumer confidence,” he said.

Meanwhile, the FNB/BER Consumer Confidence Index, which had declined by two index points in the fourth quarter of 2012 to -3, continued to slump, falling by another four index points to -7 in the first quarter of 2013.

It is at its lowest level since the first quarter of 2004.

The index combines the results of three questions posed to adults in South Africa between 13 and 27 March 2013, namely the expected performance of the economy, the expected financial position of households and the rating of the appropriateness of the present time to buy durable goods such as furniture, appliances and electronic equipment. – SAnews.gov.za

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