Country Report Swaziland January 2008

The domestic economy: Inflation rises to 9.8% in September

In line with the trend in South Africa, the year-on-year inflation rate has risen in 2007, averaging 5.6% per month in the first quarter, 8.2% in the second and 9.1% in the third. The rise from 8.6% in August to 9.8% in September was particularly high and unexpected, and was attributable mainly to transport-fare and food-price increases. The September rate was the highest since February 2003. The October figure has been delayed because of technical problems in the Central Statistical Office. The rate is well above the South African rate owing to the higher cost of living in Swaziland, largely because most goods have to be imported from South Africa, thus additional transport costs have to be factored in to prices. The inflation rate in South Africa has been boosted by high international oil prices, rising food prices and a rapid growth of domestic demand, and these have spilled over into Swaziland, where the prices of food and beverages, transport, health, utilities and fuel have increased particularly rapidly. The South African Reserve Bank (SARB) expects inflation to remain above the upper level of its target range of 3-6%, peaking at 7.8% in the first quarter of 2008, before re-entering the range in the second half of 2008 and then following a downward trend. Inflation in Swaziland is estimated to average 7.5% in 2007.

Swaziland: inflation
(% change, year on year)
South Africaa4.
a CPIX, the consumer price index excluding interest rates on mortgage bonds.
Source: Central Bank of Swaziland.

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The SARB's Monetary Policy Committee raised the repurchase (repo) rate by 50 basis points at each of its meetings on October 10-11th and December 5-6th, the latter being the fourth successive rise. The rate is now 11%, and the Central Bank of Swaziland, as is customary, promptly followed the SARB in raising the discount rate on each occasion. Domestic banks followed the actions of the Central Bank. The exchange-rate link, combined with free movement of funds within the Common Monetary Area (which comprises Lesotho, Namibia and South Africa, as well as Swaziland), obliges the Central Bank of Swaziland to align its interest rates with those prevailing in South Africa in order to prevent an outflow of funds.

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