Reserve Bank governor Tito Mboweni has warned consumers against getting "carried away" by the current upswing in the economy, saying inflation could bring some nasty surprises.

The level of household debt relative to annual disposable income had already risen to almost 62 per cent, marginally higher than its previous peak, he told a Bureau for Economic Research (BER) conference in Somerset West on Wednesday.

He said that with the sustained upswing in the economy and more favourable financial conditions there was a risk that consumers would get carried away as household disposable income rose briskly and real estate and share investments yielded high returns.

"While currently debt service ratios are undemanding on account of the reduction in interest rates since mid-2003, households would be well advised to remember the ever-present risk of a deterioration in inflation prospects," he said.

This could result in a tightening of monetary policy and the stresses and strains of servicing debt at a higher interest rate.

He said the latest BER inflation expectations survey, which showed higher inflation expectations, did not really come as a surprise in the wake of oil price trends during the past year.

However, 25 months of CPIX — inflation excluding home loans — in the three to six percent target range had demonstrated that low and stable inflation could be achieved. This remained a priority of economic policy.

"The Monetary Policy Committee will not allow price shocks to develop into sustained inflation spirals, but will be vigilant, safeguarding the gains made in combating inflation," he said.

Mboweni also said the view that a monetary policy aimed at keeping inflation low was anti-growth, was simply wrong.

There was no permanent trade off between inflation and unemployment, he added.

Mboweni also told the conference South Africa's remaining foreign exchange controls were "purposeless" and the National Treasury should abolish them.

"For all intents and purposes exchange controls have become purposeless… the cost of exchange control administration and the inconvenience that goes with managing [them] might not be worth the exercise," he said.

Finance Minister Trevor Manuel announced a further easing of the controls in his Mini-Budget speech two weeks ago, but Mboweni's views appear to be at odds with the government policy of a gradual relaxation, Business Day reported.

Sapa

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