Reserve Bank has no need to fear a weaker rand, an IMF-World Bank study suggests
The link between inflation and currency fluctuations has weakened in SA in the past 20 years — probably thanks to the Bank’s policy credibility, the researchers say
Who’s afraid of a weaker rand? Not the Reserve Bank, according to a new study examining the pass-through of currency fluctuations to inflation. The authors set out to find out why the correlation between the exchange rate and price growth has weakened in the past two decades, which coincided with SA adopting an inflation-targeting policy. They conclude that the Bank’s credibility is the main determinant. "Improving monetary-policy credibility has helped reduce the exchange rate pass-through to inflation," Alain Kabundi, an economist at the World Bank, and Montfort Mlachila, the International Monetary Fund’s senior representative in the country, wrote in the paper published on the Reserve Bank’s website. "This is quite a remarkable achievement given the numerous shocks — including large food and fuel price shocks, the global financial crisis, sharp fluctuations in the rand — that the economy has gone through."
The study has implications for countries like Turkey, where politica...
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