Speech by
Mr Hennie Bekker MP
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National Assembly Cape Town: 13 November 2007 Madam Speaker,South Africa's official inflation rate has been climbing steadily over the last few months, fuelled mainly by the international oil price, rising fuel costs and food inflation. The Reserve Bank's response has been to increase the repo rate a number of times to keep inflation within the 3 to 6 percent official target range. But, this strategy is not working. Increasing interest rates may have cooled consumer spending, but the other factors I mentioned are impervious to interest rate hikes. The IFP feels that it is time for government to reconsider using interest rate hikes to curb inflation. It is also time to review the official inflation targets as the current range appears to be too narrow and restrictive. I want to remind Hon Members that inflation simply means that too much money is chasing too few goods. In other words, to curb inflation, one must increase the supply of goods and products in the market, not just increasing the cost of borrowing at the expense of investment. South Africa's economy has to compete globally against those of the US and the European Union, among others. At the moment our high interest rates make our goods more expensive and less competitive against economies where interest rates have been kept low such as the two I mentioned. This is then a further reason not to use interest rate hikes to curb inflation as our exports and competitiveness are suffering badly from current monetary policy. A continuation of existing inflation target policy will also put paid to Minister's Manuel's focus on exports and free trade, and perhaps he should ask the Governor for a more sympathetic approach to monetary policy so that it and fiscal policy can be better aligned. Earlier this year Cabinet approved a new industrial policy for the country, but it seems that Minister Manuel is somewhat at odds with his colleague from Trade and Industry about its implementation. Perhaps that is why the Medium-term Budget Policy Statement is silent on how the Minister of Finance and National Treasury intend to play their respective roles. We are certainly looking for more details on this issue in next year's budget. Thank you. FOR MORE INFORMATION: |