Monetary policy alone cannot solve the country’s growth challenges: Kganyago

Reserve Bank Governor Lesetja Kganyago has reiterated his call that monetary policy alone cannot solve the country’s growth challenges.

Addressing the Wits schools of governance, Kganyago says the current hikes in lending rates are aimed at dealing with high inflation to protect the value of the currency.

He has maintained that the economy cannot grow in a high inflation rate environment.

Governor Kganyago says inflation is not the answer to the country’s unemployment problem.

He says to address joblessness, the country has to grow the economy.

The Governor says if the economy does not grow, there will be no job creation.

“Our basic problem is that while growth creates jobs, inflation does not. Not only does this fatally challenge the belief many hold in the existence of usable Phillips curves, but it also limits what macroeconomic policy can achieve in terms of job creation. As we have noted many times in the past, the solutions to our unemployment problem lie well outside the realm of monetary policy and in fact the failure to employ those solutions directly limits the positive contribution monetary policy can play.”

At the same time, Kganyago says high inflation exacerbates the country’s inequality problem and unemployment.

 “High inflation overall also generally means higher inflation for poorer and less-skilled South Africans than for the wealthy. This increases inequality further and worsens the already low standard of living for those households, making them costlier to employ.”

On the other hand, Kganyago says higher inflation will not result to higher sustainable growth.

“Higher inflation undermines short-run growth by increasing interest rates on borrowing, affecting consumers’ buying on credit and business owners who want to use credit to invest. Higher interest costs reduce short-run cash flow, reducing all future consumption spending.”

Kganyago says to deal the country’s low employment problem, there is a need to focus on supplying skills that are into the market and their cost.