Economist Kevin Lings says the South African Reserve Bank’s inflation targeting is still necessary although many ordinary South Africans find it irrelevant.
Inflation targeting is a framework in which the bank uses monetary policy tools, especially the control of short-term interest rates, to keep inflation in line with a given target. In this case, it is within 3.6%.
On Thursday, the bank announced the Monetary Policy Committee’s decision, which has pushed the repo rate to seven per cent and the prime lending rate to 10.5%.“The world is experiencing exceptionally high inflation right now. In just about every country, it is way outside the inflation target that they’ve had. But we do know that having the inflation target in place helps to anchor inflation expectations.
The committee based its rates decision on continued high inflation in South Africa and a weakening economic outlook.“The picture articulated by the Reserve Bank is slightly worse than its previous monetary policy messaging. It’s now told us that it expects lower economic growth, over the near to medium term and slightly higher inflation with respect to the headline CPI measure.
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