The Monetary Policy Committee (MPC) press conference at the SA Reserve Bank premises in Pretoria on 10 April will be remembered as a watershed event as SA Reserve Bank governor Tito Mboweni, resplendent in red tie, hiked the rate by 50 basis points, saying that the inflation rate will only drop into the inflation target zone of between 3% and 6% in the last quarter of 2009.
Mboweni attempted to allay concerns that the credibility of the central bank was at risk, despite the fact that the inflation number would be out of the target zone for at least another 20 months.
Mboweni also confirmed that he expects the inflation rate to come in at just under 6%, admitting for the first time that perhaps the MPC should have acted earlier. “We cant run away now,” he said, “we need to have a co-ordinated approach to inflation targeting, its not just the responsibility of the central bank,” he went on to say.
The governor didn’t want to be drawn into a debate on the electricity crisis except to say that it was a national emergency and, “…we are in it together”.
And while he didn’t begrudge Eskom for asking for an increase in electricity prices, he did confirm that no decision had yet been taken, although the National Electricity Regulator has requested comments from the central bank about the possible impact of any price increases.
“The scenario is bad. There is a national emergency to be tackled, but perhaps there are other ways to deal with the issue.” Mboweni would not be drawn on his thoughts in this regard.
The domestic overview was characterized by GPD growth in the fourth quarter, although household consumption dropped as the SARB medicine began to take effect. The household debt ratio went up marginally, while debt services costs climbed as interest rates increased, and this is expected to increase with the latest announcement.
The financials sector on the JSE reacted almost immediately to the announcement with the big four banks all dropping, while Capitec, seen as the bank for the lower income earners, was hardest hit initially.
According to Adenaan Hardien, chief economist at Cadiz African Harvest Asset Management, despite the fact that this latest hike was a difficult one to call, the outcome has made the next decision easier because of what it revealed of the MPC’s thinking. “I think there’s a good chance of further hikes.”