Economist Kevin Lings says the South African Reserve Bank’s inflation targeting is still necessary, although many ordinary South Africans see it as irrelevant.
Inflation targeting is a system in which a 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 a decision by the Monetary Policy Committee that pushed the repo rate to seven percent and the prime rate to 10.5%.
Lings says that rising inflation has become a global phenomenon.
“The world is currently experiencing exceptionally high inflation. In virtually every country, this is well beyond the inflation target they had. But we know that setting an inflation target helps anchor inflation expectations. In other words, people in the longer term believe that eventually inflation will be in the range of three to six percent. It certainly helps control inflation. I think it’s still a valid method, but obviously it doesn’t look very reliable now.’
The repo rate increases by 75 basis points
