Massage+rates,+says+Cronin,+Donwald+Pressly,+Business+Report



=Massage rates, says Cronin=


 * Donwald Pressly, Business Report, 15 January 2008**

Cape Town - The Reserve Bank's monetary policy committee (MPC) meets this month to consider whether to raise rates again, even as a debate rages within the ruling ANC alliance on whether the policy of using a blunt instrument - repo rate rises - to fight inflation should change.

Jeremy Cronin, the deputy general secretary of the SA Communist Party (SACP), said the position of Cosatu "has been consistent" that inflation targeting "is wrong".

This was more extreme than the position of the SACP, a fellow member of the tripartite alliance with the ANC and the union federation, which had also expressed concern that increasing interest rates to achieve the 3 percent to 6 percent inflation target was a blunt instrument, especially given that the key drivers of inflation were "fundamentally external" - driven by oil and food prices.

The MPC sits for two days from January 30, its first meeting since the populists and the Left swept aside moderates at the ANC national conference at Polokwane last month.

Cronin, a new member of the ANC's national working committee, and former trade unionist Gwede Mantashe, the party's secretary-general, are among the key leftists in the national executive committee.

Patrick Craven, Cosatu's spokesperson, said he did not expect union members to protest if the repo rate was raised. However, he expected the debate to feed into the parliamentary caucus and cabinet lekgotlas (big meetings) being held this weekend and next weekend, respectively.

Cosatu would not be directly represented at these lekgotlas, he said, but the federation hoped its argument would prevail.

Cronin did not expect mass action ahead of the MPC meeting, but said there was a feeling in the alliance that South Africa should follow the example of South Korea, which had "manipulated" interest rates according to industrial policy "strategic objectives".

Cronin noted that the alliance summit in March would discuss inflation targeting.

The repo rate is at 11 percent after a 50 basis point hike in November. The prime lending rate is at 14.5 percent. Both rates have risen 4 percentage points since June 2006.

Metropolitan Asset Managers chief economist Rejane Woodroffe believed Cosatu was holding back on its demand that the target band be raised - or even abandoned. Although the MPC might make a final "insurance" hike this month, she believed conditions were right to forgo a hike.

"It is not just coming from the Left that interest rate hikes are already slowing down the economy," Woodroffe said.

She predicted that inflation would fall dramatically from next month or March. Food had driven inflation, but good weather in recent months had brought down maize futures.

Woodroffe said it would send the wrong signal to the bond and equity markets if the inflation target was raised.

Brait economist Colen Garrow expected the Left's influence to grow in the longer term. This might lead to a "fine tuning" of the inflation target.

Hoping that rates would be kept on hold this month, he said it was disappointing that in the past the MPC had not used the escape clause of pointing out that external factors were responsible for inflation exceeding the target ceiling.

He did not believe political factors would intrude on monetary policy, noting that central bank governor Tito Mboweni had been resolutely independent. There was also recognition that interference would affect the country's sovereign rating.


 * From: http://www.busrep.co.za/index.php?fSectionId=&fArticleId=4206298**

571 words