It might be painful for some time, but the long-term benefits make it worthwhile 🔒
In a public lecture at the University of Stellenbosch on September 8 SA Reserve Bank governor Lesetja Kganyago revealed that the Bank wants an inflation target of 3%.
To bring that inflation under control the Fed funds rate was increased from an average of 11.4% in August 1979 to a peak of 20% in May 1981. The economy contracted, and the unemployment rate rose to more than 10%. Since the governor’s speech there have been two strands to the debate taking place on monetary policy. Those who associate with heterodox economics say this move by the Bank is bad, and in fact we need a higher inflation target so that interest rates can be low to stimulate economic activity. Or so they argue.
Tranquility is never guaranteed. To use a different example, it is similar to deciding to amputate a broken leg because fixing it might be a bit painful for a while. In truth, amputation causes lifelong disability. Technically, I would argue that the Bank does not need the government’s approval to target 3%, much like it did not need the government’s approval to anchor inflation expectations at 4.5%. And 3% is the lower band of the target range of 3%-6%, so the Bank can target it without any change in the framework.
South Africa Latest News, South Africa Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
UK inflation hits 9-year high in August as food prices riseConsumer prices rose by 3.2% year on year, the highest annual inflation rate since March 2012
Read more »
Goldman Sachs appoints Denis Coleman as new finance chiefBank replaces veteran Stephen Scherr with executive from Goldman’s investment banking division
Read more »
MARKET WRAP: Waning US inflation lashes randRand weakens most in more than three weeks as US CPI data suggests tapering may be some months off yet
Read more »
Gold holds above $1,800 after mild US inflation dataMetal remains close to key psychological level after a tamer-than-expected acceleration in US inflation leads to uncertainty on when Fed will begin tapering
Read more »
Habib stable holds a strong hand in Turffontein marathonTrainer targets first place in Racing Association Stakes with a trio of runners
Read more »
Gold slips as Fed gears up to discuss stimulus taperingThe US central bank’s policy meeting is due on September 21-22
Read more »