Economists lay out the risks for South Africa if politicians keep attacking the independence of the Reserve Bank.
According to the BER, there is a mainstream consensus that inflation targeting is the ideal mandate for a central bank. Introducing things like a “dual mandate” is a red herring, it said because a sustainable, low-inflation environment already builds in a sustainable employment environment. Price stability is always the priority.
Citing economic research to this effect, the BER said that there is no long-term trade-off between the rate of inflation and the rate of unemployment. “Lacking a credible commitment to an inflation target and monetary policy independence from political influence, prices and wages may simply rise in equilibrium as market participants assume that interest rates will be cut whenever politically expedient.”
Whether or not the ANC is serious about changing the Reserve Bank’s mandate, or simply using it as a tool for internal politicking, however, the BER said the “thinly veiled attacks” on the central bank carry significant risks.Scenario 1 – No mandate change, but attacks continue
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