No excuse for doing bare minimum when short-term QE is the right tool to tackle crisis
Reserve Bank can simply delink or divorce the quantity of money (reserves) from the interest rate target and so also from the policy rate, writes Redge Nkosi
In the wake of a series of articles criticising the SA Reserve Bank’s response to the current crisis, the Bank governor went on road shows that included a lecture at Wits University in part to defend his policy position. He argued that full-blown quantitative easing (QE) would not only be inflationary, but also end up bankrupting the Bank.
The governor explained in technical detail the mechanics behind his reasoning. He asserted that if the Bank commenced with large-scale QE purchases with positive rates, sterilisation would have to be done at a high cost to the Bank. On the other hand, the excess reserves created as a consequence of QE would push the reference rate down and thus force the repo rate too low, which would be inflationary. There is no free lunch, he warned...
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