Sifting through the invective thrown at the SA Reserve Bank monetary policy committee (MPC) in the econometric study by Gordon Institute of Business Science lecturer Dr Roelof Botha and University of Johannesburg College of Economics professor Ilse Botha isn’t easy, but it is necessary.
Judging from their comments, the two want to make monetary policy setting into a game: throw an interest-rate cut at anything that moves. Unfortunately for them, SA is no longer an immature, closed, self-financed economy, and has never been one in which weak demand leads automatically to lower inflation. In such an anachronistic and textbook economy, the output gap is the only factor to consider in making policy decisions. Reality is more complicated...
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