Why the Reserve Bank wants inflation expectations at 4.5%
The Bank has communicated the desire to shift inflation expectations towards the 4.5% midpoint to allow for flexibility to deal with price shocks
The Reserve Bank has made it clear that it wants to see inflation expectations anchored at the 4.5% midpoint of its target range, but it isn’t set to change its 3%-6% target range any time soon. SA adopted inflation targeting as the monetary framework in February 2000. The Reserve Bank achieves its constitutional mandate of protecting the value of the rand by limiting inflation to within the 3%-6% target range, which originally reflected the average inflation experienced in the country’s trading partners. Inflation, if not kept in check, can erode savings, inhibit growth, discourage investment, cause capital flight and cause social and political unrest. It was accepted by the Bank and the market that the goal was to keep inflation below the upper end of the 6% target — anything above that would likely see a rate hike and anything below it would signal room to cut rates. But in the last two years, there has been a distinct change in the Bank’s rhetoric. Monetary policy committee (M...
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