August 13, 2004

By Edward West

The question that must be on everybody's lips is whether the monetary policy committee (MPC) headed by Reserve Bank governor Tito Mboweni has diverted from its focus on inflation targeting and adopted a more political stance with greater emphasis on economic growth.

Dave Galloway, the head of investment strategy at Andisa Capital, appears to think there may be a case for an affirmative answer to this question.

"The governor's comments about the plight of the export and mining sectors suggests there may have been a shift in the MPC's stance," he said in a statement yesterday.

However, what the committee said after its meeting appears to contradict this view.

The MPC said the repo rate had been dropped by 50 basis points because the committee no longer expected the chosen measure of inflation, CPIX, to breach the 6 percent upper limit of the target range that has been set.

CPIX is the consumer price index excluding mortgages.

There was little emphasis on the need for a higher rate of economic growth in yesterday's statement, which identified global imbalances, exchange rate movements and increases in international oil prices as the most important risks to inflation.

Rian le Roux, the head of economic research at Old Mutual Asset Managers, said while the cut came as a surprise, it should not be regarded as an indication that the Reserve Bank was going soft on inflation, with Mboweni again saying that if the inflation outlook changed, the bank would act accordingly.

It is an important rider. Having worked so hard to get inflation inside the target range, the last thing Mboweni is going to want to do now is tinker too much with the recipe. The rand will probably bounce back.

Anyway, in July equities on the JSE Securities Exchange bounced back from a series of losses to record a positive month, according to Paul Stewart of M Cubed, with the market being led by resources, which were benefiting from higher raw material prices despite the strong rand. EW