‘Interest rate too low’

PRETORIA – South Africa’s central bank Governor, Tito Mboweni, warned on Wednesday that interest rates may be too low, hinting they may have to rise again in Africa’s biggest economy.

“Maybe we have been far too nice to our people and interest rates have been too low,” he told a dinner in Pretoria, adding that inflation data released on Wednesday was disappointing. The Reserve Bank, South Africa’s central bank, lifted its repo rate by half a percentage point to 9,5 per cent this month, ending a six-month pause, warning that price pressures were more broad-based than merely higher food and fuel costs.Wednesday’s data showed another rise in CPIX inflation – consumer prices minus mortgage costs – further outside the bank’s three to six per cent target, to 6,4 per cent year-on-year in May, raising the chances of another repo increase when the bank’s monetary policy committee meets again in August.”The inflation number that came out today has not been very nice, it is going to spoil the party,” Mboweni said.”Consumption expenditure has been going higher and higher …now interest rates are going higher.Many people, as I’ve said before, are going to find it very hard.”South Africa’s rand currency firmed after his comments, gaining four cents against the dollar to trade at 7,1460 to the US dollar.Statistics South Africa data showed CPIX edged up again last month, adding to April’s leap to 6,3 per cent, the first breach of the target band in nearly four years.The central bank has forecast it will stay outside the band until into 2008, save for a brief dip in the third quarter of 2007, largely due to fast-rising food and fuel costs.High domestic spending has helped lift South Africa’s economic growth to average five per cent of gross domestic product, but has also added to inflationary pressures, with consumers continuing to rack up debt.Credit growth remained near a record high at 25,08 per cent year-on-year in April.Mboweni said high food and fuel prices remained the driving force of higher inflation and posed major upside risks to the outlook, both in South Africa and abroad.Nampa-ReutersThe Reserve Bank, South Africa’s central bank, lifted its repo rate by half a percentage point to 9,5 per cent this month, ending a six-month pause, warning that price pressures were more broad-based than merely higher food and fuel costs.Wednesday’s data showed another rise in CPIX inflation – consumer prices minus mortgage costs – further outside the bank’s three to six per cent target, to 6,4 per cent year-on-year in May, raising the chances of another repo increase when the bank’s monetary policy committee meets again in August.”The inflation number that came out today has not been very nice, it is going to spoil the party,” Mboweni said.”Consumption expenditure has been going higher and higher …now interest rates are going higher.Many people, as I’ve said before, are going to find it very hard.”South Africa’s rand currency firmed after his comments, gaining four cents against the dollar to trade at 7,1460 to the US dollar.Statistics South Africa data showed CPIX edged up again last month, adding to April’s leap to 6,3 per cent, the first breach of the target band in nearly four years.The central bank has forecast it will stay outside the band until into 2008, save for a brief dip in the third quarter of 2007, largely due to fast-rising food and fuel costs.High domestic spending has helped lift South Africa’s economic growth to average five per cent of gross domestic product, but has also added to inflationary pressures, with consumers continuing to rack up debt.Credit growth remained near a record high at 25,08 per cent year-on-year in April.Mboweni said high food and fuel prices remained the driving force of higher inflation and posed major upside risks to the outlook, both in South Africa and abroad.Nampa-Reuters