Could there be a dove lurking behind Mboweni's hawk mask?

Tito Mboweni, the SA Reserve Bank governor, is often seen as a hawkish central banker. But last week at a business breakfast, he said he "would have loved interest rates to be low".

Assuming he was not just saying this to endear him to the business people at the breakfast, perhaps it raises a question about the unanimity of the monetary policy committee's (MPC) decision to raise interest rates last week.

The official line is that the MPC's decision is reached only after everyone agrees on the appropriate course of action. Is the debate far more robust and the disagreements more vehement than we are led to believe?

In other parts of the world, the UK for example, the minutes of the MPC meeting are made public. This is not the case in South Africa.

The contents of the discussion would be very interesting - the discussion regarding what to do in the face of rising food and fuel prices, which are not the result of consumer excess, particularly so.

Mboweni has acknowledged that tightening monetary policy will not reduce oil or food prices.

He explained that the decision to hike rates was based on the fact that consumer inflation had shown a strong upward bias even when stripped of food and fuel.

One could therefore see the rate hike as more of a move to enhance credibility. Certainly consumers could have seen a neutral monetary stance as a go-ahead to spend freely.

But Mboweni's personal position of preferring low interest rates is not illogical.

Recent increases in the uptake of loans have largely been related to companies expanding their capacity amid the current fixed investment drive.

Low interest rates would mean low debt payments for these companies, and, in such an environment, much fixed investment may be achieved.

However, given the negative impact that inflation may have on the economy, the measured pace with which the Reserve Bank has raised interest rates is likely to be the best course of action, compared with doing nothing.
by:www.busrep.co.za