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%.
Lings says escalating inflation has become a global phenomenon.
“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. In other words, people over the longer period assume that eventually inflation will be in the range of three-to-six per cent. That definitely helps to control inflation. I think, it’s still a relevant method to use, but obviously right now, it doesn’t look especially credible.”
Repo rate increases by 75-basis points