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BANKING

South Africa: Inflation set to fall, says central bank governor

Inflation in South Africa continues to shock after reaching 10.4% on a year-on-year basis in April. The rate confounded expectations, including that of Tito Mboweni, the central bank governor, who told Euromoney, two weeks before the announcement of the April figure, that he believed it had peaked at the end of the first quarter.

Tito Mboweni, the South African central bank governor

"Growth rates have tested the limits of our existing infrastructure. However we do not see an economy on its knees"
Tito Mboweni

Year-on-year inflation hit 10.1% in March and Mboweni said in an interview in mid-May that the Reserve Bank of South Africa’s quarterly core forecasting model expected the rate to start falling. He said the rate will gradually decline to "below the 6% upper end of the inflation target range during the fourth quarter of 2009."

He did warn, however, that the request by power utility Eskom for a 60% increase in electricity prices from the middle of this year, and for a similar rise next year, "will have a material impact on the inflation outlook".

Since the beginning of the year South Africa has suffered from power outages brought on by a lack of government investment in the electricity generating industry. So far the government has approved a 14.2% price increase for 2008/09, well below the level that Eskom is seeking. At a summit held last month to discuss Eskom’s proposed price hike, Alec Erwin, public enterprises minister, agreed that an increase was necessary, although he said that it would be a shock for the economy.

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