THE government and its social partners could do a lot more to reduce inflation pressures in the economy by promoting competition, achieving wage moderation and raising productivity, Finance Minister Pravin Gordhan said in a written reply to a parliamentary question on Monday by African National Congress (ANC) MP Des van Rooyen.
He said that along with low inflation, progress in these areas would support South Africa’s international competitiveness, and contribute to more rapid economic growth in the future.
Mr van Rooyen wanted to know whether government’s monetary policy of targeting low inflation, lower real interest rates, and additional purchases of foreign currency had helped promote economic growth or not.
Mr Gordhan said that since inflation targeting was adopted in 2000, "both the level and volatility of inflation has declined, GDP (gross domestic product) growth has also been stronger and less volatile than under previous monetary policy regimes.
"In recent years, external shocks to food and oil prices have temporarily driven South Africa’s inflation rate above the 3%-6% target range. Guided by the impact of current economic developments on future inflation prospects, the Reserve Bank remains focused on gradually reducing inflation back within the target range. But the Reserve Bank managed interest rates with the general economic situation in mind."
Mr Gordhan also affirmed the government’s strategy of financing additional purchases of foreign currency, which he said had been important in building up South Africa’s ability to weather global turmoil, such as a sudden stop in capital flows.
In the current environment of global turmoil, the value of this insurance policy could not be underestimated, he said.
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