MONETARY POLICY
HILARY JOFFE: The central bank can nudge, but only the state can restructure
The strategic shift is also linked to the adoption of a new model to guide the committee’s decision-making
SA’s inflation rate has been in the bottom half of the 3%-6% target range only three times since inflation targeting was introduced in 2000. Now is one of those times, and when it turned out that inflation had sunk to just 3.8% in March, it prompted the usual calls for more interest rate cuts — and the usual criticism of the Reserve Bank’s cautious stance. But the rand’s 5% decline against the dollar in April should remind critics of the “heightened uncertainty” the monetary policy committee has cited so frequently over the past six months as cause for caution despite an improving inflation outlook. The monetary policymakers shifted their strategy after late 2017, in effect using the better times for inflation to try nudging the inflation habit down towards the middle of the target range. The shift is made explicit in the Bank’s latest Monetary Policy Review, which reads policymakers “have taken the strategic decision to anchor inflation expectations closer to the 4.5% midpoint of t...
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