‘Appropriate for SA to raise rates’

PRETORIA – Tighter monetary policy in South Africa and other emerging market economies was “very appropriate” given the upside risks to inflation, a senior International Monetary Fund official said on Monday.

Several emerging market economies have been increasing interest rates as inflation quickens in contrast to developed countries such as the United States, where growth concerns have seen interest rates cut. Charles Collyns, deputy director for research at the IMF, said emerging markets faced different problems to advanced economies where there were downside risks to economic growth.”We do see inflation risks in South Africa and other emerging markets, particularly from global commodity market developments …rising oil prices and accelerating food prices,” he said, adding these held greater weight in countries like South Africa, which is a leading producer of gold and platinum.”So it is very appropriate that the Reserve Bank here in South Africa is tightening monetary policy,” he said.Central banks in other emerging markets like China and Mexico were also tightening policy to reduce risks and keep inflation under control.South Africa’s central bank has raised the repo rate by 150 basis points to 10,5 per cent since June, adding to 200 basis point worth of increases in the second half of 2006 to tame inflation and robust consumer spending.Still, high inflation and hawkish comments from the central bank have raised speculation of another hike in December.”We still see strong growth in emerging market countries like South Africa but we see larger inflation risks from higher commodity prices,” said Collyns, a lead author of the IMF’s bi-annual World Economic Outlook, after presenting the report in Pretoria.”So, we think it is sensible for central banks in these countries, including South Africa, to be tightening rates.They are doing the right thing,” Collyns said.CPIX – the inflation measure monitored by the Reserve Bank – has stayed outside the targeted three to six per cent band for the sixth month in a row.Nampa-ReutersCharles Collyns, deputy director for research at the IMF, said emerging markets faced different problems to advanced economies where there were downside risks to economic growth.”We do see inflation risks in South Africa and other emerging markets, particularly from global commodity market developments …rising oil prices and accelerating food prices,” he said, adding these held greater weight in countries like South Africa, which is a leading producer of gold and platinum.”So it is very appropriate that the Reserve Bank here in South Africa is tightening monetary policy,” he said.Central banks in other emerging markets like China and Mexico were also tightening policy to reduce risks and keep inflation under control.South Africa’s central bank has raised the repo rate by 150 basis points to 10,5 per cent since June, adding to 200 basis point worth of increases in the second half of 2006 to tame inflation and robust consumer spending.Still, high inflation and hawkish comments from the central bank have raised speculation of another hike in December.”We still see strong growth in emerging market countries like South Africa but we see larger inflation risks from higher commodity prices,” said Collyns, a lead author of the IMF’s bi-annual World Economic Outlook, after presenting the report in Pretoria.”So, we think it is sensible for central banks in these countries, including South Africa, to be tightening rates.They are doing the right thing,” Collyns said.CPIX – the inflation measure monitored by the Reserve Bank – has stayed outside the targeted three to six per cent band for the sixth month in a row.Nampa-Reuters