The inflation targeting debate

By Staff Writer

The new Minister of Finance, Pravin Gordhan, has signalled his willingness to debate the policy of inflation targeting that has lead our interest rate policy since 2002. The outcome is still uncertain, although analysts believe it will be more on the lines of tweaking current policy rather than a full scale about face. The policy has served us well so far but as the global and domestic financial outlooks change so should our policy. So what did the minister allude to us doing?

 

  • No over borrowing to boost growth
  • Spending on infrastructure
  • Prudent debt management 

Inflation targeting is seen as an investor friendly policy and the market watchers were keenly looking for a reaction in the international bond market to the announcement that Gordhan is open to debate on inflation targeting, but the reaction was minimal meaning that the international markets are so far happy with the new dispensation here in South Africa. The Government is also busy releasing a new bond designed to raise one billion dollars US to help finance our budget deficit. The government knows its budget gap is too wide, but have you planned exactly what is in your own personal budget?

The left has generally been critical of inflation targeting believing it to be more investor rather than worker friendly. However we can expect that any change implemented will be gradualist and evolutionary rather than revolutionary and that the Minister will be looking for a consensus view with regards to any changes in monetary policy. The Government is expected to pursue a more growth oriented strategy and any new policy direction would play to that.

 

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